Saturday, May 10, 2008

FHA: Get It While It's Hot!

A home seller is not allowed to give the buyer money for anything other than closing costs. The seller can not pay the buyer's down payment. This is called "inducement to sell" and it's illegal.

The Ameridream program was created to enable a seller make a "donation" to Ameridream. As a non-profit, Ameridream is then able to make a "grant" to the buyer that happens to equal the seller's donation to Ameridream, minus an administrative fee.

This money laundering scheme, which is one of the many causes of home price inflation, was supposed to die last winter, but it was given a temporary stay of execution. Ameridream can only be used in conjunction with an FHA loan.

The maximum FHA loan amount in Pima county was $239,850 until it was temporarily increased to $316,250 in March this year. This temporary increase is scheduled to expire at the end of this year.

The extension of the Ameridream program, and the temporary increase in the maximum FHA amount have the same purpose: to make home financing possible for buyers with little to no savings, which constitutes the majority of the home buyers.

Conventional loans (those that are not government insured as FHA and VA loans are) now require a 10% down payment. This can not be borrowed. If the buyer is getting a money from a relative for his down payment, the relative must be willing to sign a letter saying the money is a gift that does not have to be repaid.

The average sale price of a single family house in Tucson was $287,133 in March 2008. If the average buyer, who has little to no savings, is going to buy the average house, he will need to use an FHA loan plus Ameridream. If the Ameridream program is discontinued and the temporary increase in the maximum FHA loan is not extended, a buyer will need to use a conventional loan, which means he will need about 10% of the purchase price for down payment, plus another 2% for closing costs.

Sellers who have houses priced in the $240,000 to $316,000 range need to realize that the pool of eligible buyers will get a lot smaller if Ameridream dies and the FHA loan amount is once again indexed to the median sale price, which is currently $200,000 in Tucson.

Buyers AND sellers need to take advantage of the opportunities presented by FHA loans NOW.

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