Since the late 1990s, builders active in the entry-level segment of the market have had "guardian angels" at their sides to assist otherwise qualified prospects with the toughest challenge in buying their first home -coming up with the down payment.
Charitable organizations like Nehemiah (www.nehemiahcorp.org) and AmeriDream (www.ameridream.org) provide these angelic "gifts" that skirt legal restrictions preventing builders from providing down payment assistance directly. However, after the fact, the angels require the builder to contribute to their cause an amount that just happens to equal the down payment plus a fee to cover overhead and administrative costs.
The down payment assistance program (DAP) industry has helped thousands of young, low-to-moderate-income families jump the down-payment and closing-cost hurdles to qualify for FHA mortgages and buy homes produced by both GIANTS and smaller builders. The typical Nehemiah gift recipient, for instance, has a median income of $40,764.
Now AmeriDream, a Gaithersburg, Md.-based DAP charitable organization operating since 1999, has come up with a new wrinkle that seems to defy economic logic. The organization offers an increased benefit to the home buyer, while lowering the fee to the builder.
Launched this summer, the "Dreamkeeper" mortgage payment relief program includes an insurance plan to protect against two of the biggest threats to a new homeowner's ability to pay. Borrowers who have become involuntarily unemployed or disabled can have their principal, interest, taxes and insurance paid for up to nine months. Coverage lasts for five years, after a six-month vesting period. And yet, the fee the builder pays (in addition to the gift amount) is only $185, compared with $325 under the original AmeriDream program. There's an additional percentage point fee to cover the cost of the insurance, but that's paid by the lender. Actually, it's usually passed on to the buyer in the form of a slightly high rate on the loan.
"Under the new program, the builder's fee goes down because the risk of default is lower," says Chuck Hammett, AmeriDream's Southeast regional director of marketing, based in Tallahassee, Fla. "Delinquencies and foreclosures most often occur between the second and fifth years.
"A builder in Memphis asked me why he'd ever use the old program again," continues Hammett. "I told him I don't know, but the old one won't go away, even though we expect the new one to eclipse it."
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