Most home buyers are familiar with FHA loans, which historically have been one of the best ways to purchase a home with as little as a three percent down payment. With these loans, the seller typically contributes up to three percent of the sales price toward the buyer’s closing costs and prepaids (such as insurance reserves), saving the buyer these costs. These contributions are capped by the lenders at three percent.
What most buyers don’t know, however, is that through what are called FHA Preferred Programs, the seller may gift an additional three percent to a non-profit agency that assists buyers in obtaining the necessary three percent down payment for an FHA loan. The most familiar of these agencies are Genesis, Ameridream, and Nehemiah.
Confused? Let me try to clear it up. Say you pick out a house you like that’s $100,000. Instead of offering a lower price, you could ask the seller to apply three percent of that price toward your closing costs; money that would come out of his pocket, leaving him with a net of $97,000.
You could also ask that he participate in one of the FHA Preferred Programs and donate an additional three percent to one of these non-profit agencies, as well as pay a required administrative fee(usually a few hundred dollars) . This agency would then make a gift to you of the three percent down payment.
By asking the seller for these two contributions, you are in effect, really offering the seller $94,000, as that’s what he’ll net after making these concessions.
Sometimes the seller will agree to pay one and not the other. If this is the case, it is often possible to raise the price slightly so the that the seller nets a higher amount. For example, the offer could name a price of $103,000, with the seller making the down payment and closing cost contributions. This would leave him with a net of $97,000. Of course, the transaction would be contingent on the property appraising for the higher amount.
Agents have been helping first time home buyers take advantage of these Preferred Programs for years. What very few Realtors realize, however, is that these opportunities are available to any property that qualifies for an FHA loan.
In other words, you can still buy a duplex, triplex or fourplex to owner occupy with nothing down!