This is my column for this week from the Arizona Republic (permanent link):
Down Payment Assistance is another creative financing option you can deploy to make sure yours is the home that sells
It’s a hard world for home sellers right now. It’s possible that things are slowly getting better, but a qualified buyer still has at least ten suitable homes to choose from.
Does this mean you might sell now, or you might sell a little later? Probably not.
Does it mean you might sell for your price, or you might have to accept a little less? Probably not.
What it means is that, if your home is not the one that answers most of a potential buyer’s needs, it probably won’t sell at all in this market.
We’ve talked before about being the most appealing — best priced, best prepared, best presented. These are the homes that will sell to the best qualified buyers — while the near-misses languish month-after-month.
We’ve talked about using seller-financing to help less-qualified buyers. Carrying back a note for a third mortgage entails a risk of loss, but, again, that marginal difference can be moot if the house wouldn’t sell otherwise, or if it sells months later for a much lower price.
There is another creative financing avenue you can pursue, although this one comes with an assured loss to the seller. It’s called Down Payment Assistance. Through programs like AmeriDream or Nehemiah, sellers contribute a portion of the sales price to serve as down payment or closing cost assistance to the buyers, who receive those funds at close of escrow as a grant.
This is what I call Psycho Lender Math at its worst, since the lender is permitting the sellers to discount the home by a huge percentage while pretending that that same pile of money is coming to the buyers as a grant from a neutral third party.
The house still has to appraise for the full purchase price, so it really is just a seller discount disguised as a shell game — but if it means your house sells while all the others languish, you still might be ahead of the game.
These programs require advance legwork, so talk to your Realtor about what you need to do to participate. Note also that both programs are slated to be discontinued and are being kept alive, for now, by court intervention. If you do initiate a transaction involving Down Payment Assistance, it probably makes sense to act fast.
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Joe Hayden says:
Nehemiah, Ameridream, and the HART program all run the risk of getting a buyer turned around in a home from the start. Depending on the seller ‘contribution’ that is required (usually around 6% if I remember correctly), it is not unheard of for the seller to actually raise the purchase price of the home to return the funds. And where do the funds for closing costs and prepaids come from?
Supposedly, there are systems in place to protect the buyer from overpaying the market price, but I’m not so sure these programs don’t put the buyer at a greater risk than necessary anyway. My thoughts are if you need one of these programs, you may want to honestly review making a purchase at this time and continue to save and improve your credit scores.
February 19, 2008 — 2:59 pm
Greg Swann says:
Excellent points — and a compelling argument for buyers to pursue competent, exclusive representation. My duty as the listing agent is to make it as easy as possible for a buyer to make what might well be the wrong move, financially. If I did that as a dual agent, I would deserve to be hog-tied. But if buyers choose to work without representation — or without zealous representation — my fiduciary duty is to the sellers.
February 19, 2008 — 3:12 pm
Joe Hayden says:
I agree…
I know for a fact putting “this home may qualify for…” in the listing draws the inquiries to the door. The key word is ‘may’…
Lots of buyers are so clueless about financing that once you can get into contact with them, it is possible to educate them and offer up solutions that they may not even be aware exist.
February 19, 2008 — 7:27 pm