Orlando Real Estate News

If you've found your Orlando dream home, but don't have the money for a down payment, you may want to consider using a Central Florida down-payment assistance program to help make that dream come true.

What is down-payment assistance?

Down-Payment assistance is a program provided by non-profit organizations to help low-income families acquire the down payment, closing costs and other up-front expenses required to purchase a home. It may surprise you to know that almost one fifth of borrowers with an FHA mortgage utilize a down-payment assistance program.

The three most recognized non-profits offering down-payment assistance are AmeriDream Inc., Partners In Charity, and Nehemiah.

For first-time homebuyers, I should start at the beginning by explaining what a down payment is and why it is often required.  A down payment is money a home buyer must come up with out of his or her own pocket in order to qualify for a mortgage.  It is typically anywhere from 3% to 20% of the home's purchase price.  In the past, 20% was most commonly required, but to make home ownership more accessible, requirements have been relaxed.  Today with an FHA loan, the down payment can be as low as three percent.

Lenders require a down payment in order to reduce their risk of the borrower defaulting on the loan.  The more money someone has invested in their home, out of their own pocket, the less likely they are to just walk away.  Also, as we're currently seeing prices fall in many areas of Orlando, Central Florida and around the country, lenders want a down payment to ensure they are not lending more than what the home will be worth in 6 months.

So, how does a down payment assistance program work in Orlando? 

It really comes down to the fact that the home seller is providing the home buyer with the cash for a down payment.  A seller would do this to attract a much larger pool of home buyers to their property.  Since federal regulations prohibit a home seller from giving this money to a buyer, the assistance of a third party is required.  Enter the non-profit administrator of the down-payment assistance program.

The non-profit organization handles the transfer of money from the seller, and gives it to the buyer as a "gift", minus the small fee the organization charges to handle this transaction.  This fee is typically a flat fee, or sometimes one percent.  The best part is that the buyer is not required to pay back this fee.  Now there are many forms of down-payment assistance, and we're not experts in this arena.  If you would like more information or would like to speak with an expert, contact us and we'll put you in touch with an expert in this field.

A Word Of Caution!

There are some excellent down-payment assistant programs available. There are also some shady ones. It's important to confirm that the nonprofit organization with which you're dealing is legitimate.

It's a good idea to keep an eye out for unsavory down-payment assistance providers.  Ask each for a record of its financial stability.  Ask about partnerships it enjoys with community organizations and businesses.  Ask if it ever endorses the practice of allowing borrowers to use their down-payment gifts to pay off bad debts, judgments or liens in order that they might qualify for loans (this is highly discouraged). And stay alert to any sign that the nonprofit is giving kickbacks to real estate agents, mortgage brokers or anyone else involved in the mortgage transaction.

I've recently seen two separate instances of shady investors offering to help home buyers pay off delinquent accounts and judgments, provide down payment money and more, all for only $40,000 to $60,000.  Two cases of this in only the past month!  We were able to convince one of these buyers to consult a reputable lender and they were able to save the buyer $37,000.

Please consult a reputable realtor and a reputable lender when planning to purchase your dream home.  If you need a good recommendation in your area, please feel free to contact us today!

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