Home Down Payment Assistance – Where is the Free Money?

Home down payment assistance programs are designed, in most cases, for first time home buyers. If I could a have just a simple dime for every first time home buyer who thought the home down payment assistance meant free money then I most likely wouldn't be writing articles.

Before October 1, 2008 there were two competing charitable organizations that made it sound like first time home buyers could receive free money for their entire down payment. These organizations were called AmeriDream and Nehemiah.

In a sentence, they worked by the seller making a 'charitable donation' to the organization in the amount of the buyer's down payment (plus a nominal fee around $500) and the organization would in turn give the needed down payment to the buyer as a 'gift' that didn't need to be paid back.

The marketing message to the buyer was, in essence, they could receive their home down payment assistance as a gift and it didn't need to be paid back.

But was it really 'free money'? Not at all.

The reality was over ninety percent of the buyer's who received this 'free money' actually added the down payment amount to the purchase price. For example, if a home seller agreed to a purchase price of $200,000 and the buyer needed $10,000 or 5% down, the buyer would simply make the offer $210,500.

In this scenario it's a win for everyone.

The Charitable organization received $10,500.

The seller received the agreed upon net of $200,000.

The buyer gets a gift in the amount of $10,000.

The Charitable organization makes $500 profit for servicing the transaction.

So why isn't the gift free money? The reason is because the buyer raised the price of the home by $10,000. This means the buyer is financing $10,000 the 'gift'. When you consider it costs about six dollars for every thousand dollars financed (at a six percent APR), the buyer's mortgage payment will be about sixty dollars higher per month.

It doesn't sound much like free money anymore when it's being financed as part of the mortgage…especially when the buyer is paying interest on the mortgage, does it?

So, are there really any home down payment assistance programs that actually give free money? The good news is there are. However, the conditions and criteria make these programs less than popular and the areas that qualify are not the nicest.

If you are a first time home buyer and need home down payment assistance call your local lender to see if there are programs available for your needs or contact the local HUD office nearest you.