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     | Thursday, April 05, 2001 - 05:10 am  I am totally confused on these gift programs. I called PIC & they said no problem for us to getup to 10% of our loan for downpayment assistance. The builder or land owner would have to agree. The land we're looking at is $36,900. The man from PIC said something about the landowner probably agreeing if he put $46,900 down for the selling price. WHAT? Can someone please explain how they actually work. We are looking at the loan amount for land & construction at $131,000. So how would it work??? Since we are going FHA the builder has all ready tacked on $3200 for closing costs & Interest during building. What's the point if they tack on all the charges & put you over the amount you can be approved for. Confused!!!! Thanks Becky
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| | Thursday, April 05, 2001 - 09:17 am I have NO idea why it's any of the landowner's business where your downpayment comes from. He's not financing, is he? It sounds like PIC is working for the sellers? I don't know the program, do you have an e-mail for them or a phone #?
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| | Thursday, April 05, 2001 - 12:16 pm I got there name off of a post on this board. The number is 1-800-705-8350. No the landowner is not finacing. We are going to a mortgage co for an FHA loan. I was also told by one lender that they do not grant these gifts to people that had been in BK.? I was just wonderfing if someone could tell me how a Gift program is suppose to work? On an FHA loan is it customary for the builder to tack the charges on to the construction cost that they are suppose to be paying for us to use the FHA? IE...CLosing costs, interest during construction... Thanks Becky
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| | Thursday, April 05, 2001 - 02:55 pm OK, hadn't realized PIC program stands for Partners in Charity until I called. The SELLER has to pay for whatever "gift" you get, that's why the increase in price. Now, obviously, the question is whether the property will still appraise if you just add the gift money. Normally the idea is that the seller gets a FULL PRICE offer instead of a more realistic lower than asking price. You need to find out what the lots are SELLING for. What's it worth? In addition to the "gift," the seller also has to pay 3/4 point to PIC. This doesn't make sense to me. Why not just give the buyer the money and do away with PIC?
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| | Thursday, April 05, 2001 - 03:33 pm Christine, We are paying the asking price. He wouldn't come down any. If we add any to the price of the land it won't appraise out. What is the point of this "gift" if it is just added on to the loan? For the FHA we need 3% down. APProx $3900. If we in turn add this to the loan then we are over our income limit. Dosen't make sense to me either. Are we missing something?  Becky
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| | Thursday, April 05, 2001 - 04:19 pm Becky, it's a common practice to allow the seller to contribute to closing costs. Many people are financing their closing costs, but of course they have to qualify for the loan. These "gift" programs take this practice one step further and allow you do finance your down payment. Don explained it nicely here I do think that calling it a "gift" is not appropriate, it's a technique to make things work, and NOT a gift at all. Since you're financing the "gift," a $5,000 gift is probably going to cost you $15,000 over the life of the loan. It really bothers me that INSTEAD of educating buyers and teaching them about property VALUE, appraisal, negotiations and interest, they tell you this is a gift and to increase the sales price. I don't understand why FHA requires an outside agency to be involved and to suck up more of your money, in your case about $1,000. What a waste of money, YOUR money, government in action. And, you should find yourself a good agent and you shouldn't be buying NOW when everybody else is buying and competing with you. Different topic though.
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| | Thursday, April 05, 2001 - 05:23 pm Thanks Christine. I think I get it now. It's just a way to get you a 100% loan that you wouldn't qualify for other wise. Some "gift". Nothing like getting you coming & going. We are actually wanting to do new construction. At this time we don't really have a choice of waiting to buy later. We are in a lease/purchase home at the moment & after only living in it a few months we do not want to purchase. Way over priced for the area & to much work needed. So we only have 7 months left to get alternate housing. Becky
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| | Saturday, April 07, 2001 - 06:31 am It really bothers me that INSTEAD of educating buyers and teaching them about property VALUE, appraisal, negotiations and interest, they tell you this is a gift and to increase the sales price. Christine, this is the simple answer. However, borrowers do not want to hear this. They want to know when can I buy and what is my payment. Do you know how hard it is to get a buyer to take a first time homebuyer class. They don't want to be bothered. I do think that calling it a "gift" is not appropriate, it's a technique to make things work, and NOT a gift at all. Since you're financing the "gift," a $5,000 gift is probably going to cost you $15,000 over the life of the loan. Your 100% right, it is a technique. It would be simpler for FHA to just do 100% loans than this stuff. It would also be simpler if borrowers spent some time saving some money, but we know both wont happen anytime soon. The other thing to remember is these borrowers will not qualify for 100% financing generally due to the fact that they have shown a poor ability to manage their finances in the past. Couple that with no savings and you've got some fairly risky clients trying to get in with no money down. Even though it migh cost them a bit more, it is still cheaper than going to a subprime loan at a much higher rate. Yes it may cost them a bit more but they have to weigh it against renting vs. owning. Becky, In no way do you want to do 10%. More standard is 3%. Based on the email you sent me I have some VERY serious concerns. First, You should not be working with the builders wife as your loan officer. NO WAY, NO HOW! I SEE TROUBLE ALL OVER THIS!! Who's lokking out for your interest? The builder or his wife. Seems like you going to be the one on the loosing side here. Second, you should not be building!! You do not have the financial resources to take on the construction loan. Your trying to finance 100%, your budget is very tight as mentioned above. Having built homes before, they alway cost more than you think. The builder seems to want you to carry the financing durring construction. This put you at total risk. What if he goes belly up? What if he is 3 months late, whos pays the extra interest and charges? What if things cost more? If you want a new home, have him build it off of his credit lines and you purchase for a fixed price only when it is complete. Hire a lawyer to review the contract to protect your interest as builders tend to write things in their favor. A coupel of hundred upfront can save you thousands later. If he can't build it on his credit lines then find a builder that can. If your end loan is going to be an FHA loan you need to make sure that the builder is approved with FHA and can meet all of the requirements. Sorry to be so negative but I see problems all over this deal. MAybe they can be worked out but it seems like a lot of risk on your part?
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| | Saturday, April 07, 2001 - 02:35 pm I totally agree with Don. Most people want to strain their brain as little as possible and the less they have to think the happier they are. I also agree about the many potential problems with building a new home and NOT working with the builder's wife. There are some related postings here. When it comes to savings, it is very unfortunate that people with just ONE old collection or the WRONG credit card can easily end up paying $100+ per month MORE for NO extra goods and services. That's because they have a low FICO score. Add that up over 5 years, and there is your 5k or 10k down payment, in the hands of insurance companies, credit card companies, banks, etc. Especially young families with kids often have unforeseen emergencies. But owning a home ALSO involves many expenses that fist-time buyers don't expect. Just like with a kid, there are ongoing as well as unexpected (major) expenses. I've worked with a lot of first-time buyers but never did a 100% financing deal, wasn't aware of those programs then or they weren't available for the high priced Bay Area. I do know that some of the WORST neighborhoods became just that because of the 100% VA financing and the owners had nothing to lose when they let their houses deteriorate and/or eventually they just "walked" and let the lenders foreclose. People don't value what's "FREE." I often read that the US is the only country in the world where you can buy a house without a down payment. In Europe people can put pretax money on a monthly basis in a special account that turns into a downpayment loan when a certain percentage is reached. I.e. a $10,000 contract become eligible after $2,000 are paid in and then you can use the $10,000 as downpayment and pay a very low rate of interest on the balance. I'd prefer that to funky gift deals and it would demonstrate the "ability to save." Determining who IS ready to buy takes more than reviewing the credit and loan application. I'd routinely spend 20+ hours with clients looking at houses and discussing financing and contract before I decided whether to work with them. I've told many buyers what NOT to do and they went ahead anyway to lose thousands of dollars in just a few years. The gorgeous model homes, the nicest house in the neighborhood, I guess it's the same as the "new car" syndrome. Learning about credit, financing and real estate is a tremendous task, it takes brains and it takes time. You can never know everything. There are always risks. It was very satisfying for me to work with blue collar first-time buyers, knowing that by the time we closed they understood their loan, their credit and their house. But I couldn't make a living doing this because it took too much time, even though I did NOT have to split my commission with a broker. I think most people are not too stupid to learn, but they are overwhelmed by the complexity and give up before they ever try.
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| | Saturday, April 07, 2001 - 05:53 pm We didn't end up in this situation out of ignorance or finacial mismanagment. Due to a failed buisness we filed ch 13 on the advise of a very well paid attorney. Which we took care of all accounts in 6 months. Up until 2 years ago we had owned 2 homes, with conventional, "A" paper loans. Never late a day. Now due to a CR that shows the ch 13, two Discharged/charged off less then $500 accounts. Plus a 30 -60 day late mortgage payment due to the Trustee paying the last payments 1 1/2 months late. We seemed to be damned. In the past two years we have saved up some money, restablished several of unreported credit accounts & one CC account with one of the CC accounts reporting us as Discharged/charged off on our CR's. Go figuare. I just wanted to be well versed on FHA loans since I have never had to deal with them. We aren't looking for Tara just a nice home for our kids to grow up in. Since my husband still holds his Residential contractor license the most for our money was to build. Especially since we still have close to $20K of finish materials sitting in a storage shed at the cost of $88 a month. Constructing a home w/land for $110K with the final apprasial being in the $170's. Seemed like a good plan. Now if just a lender would agree.
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