This is straight from my local Countrywide lender.
I wanted to make sure everyone is aware that HUD will no longer allow DAPs starting this Friday, August 29th. If you have a buyer that is close to writing an offer and is planning on using an FHA loan with a DAP, they will need to have their loan locked by this Friday. Additionally, the purchase will need to fund by September 30th.
Why is this happening? HUD has found that the performance/default rate of FHA loans with a DAP have a substantially higher rate of default when compared to FHA loans that the buyer came up with their 2.25%-3% down payment.
There continues to be further discussions about repealing the recent congressional decision regarding DAPs, however, please make sure you educate your buyers as they will no longer be able to use seller contributions to pay for their down payment..... You will still be able to cover closing costs and prepaids with seller concessions..
I THINK THAT THIS MAKES A TON OF SENSE, BUT MAY HURT AN ALREADY SLOW MARKET.
very true, although other lenders are allwing different time tables
I have seen several lender memos stating the same thing. They are ending Seller-funded DAP's much earlier than the federal cut-off.
Don't forget that FHA is also looking at changing the minimum down payment from 3% to 3.5% and the insurance premium will change from 1.5% to 1.75%.
Although I believe that there is a time and a place for FHA in many forms I believe it has been abused by lenders out of pure greed. Lenders can make more money on FHA than almost any other program. I have seen people put into FHA that should have gone USDA (No monthly MI) or even conventional with TAMI with the same rate and lower fess.
DAP was mostly run by for profit companys that take a fee with no risk of losing their money. If the loan closes the sellers pays back the DAP plus the fee. If the loan does not close no money is exchanged. A very good deal for the DAP companies.
USDA for purchases is the way to go. If you have a 620 mid score all past credit issues are forgiven with the exception of federal debt and judgements. Ratio's are very liberal and the appraisal requirements are less strict. Not to mention lower rates, up to 6% seller contributions, ability to finance in the closing costs if the appraisal supports them and lastly no monthly MI. Also remember that USDA is not only for FTHB anyone without "adequate housing" is eligible.
Just my $.02.
Jake