First off – A DAP is the “mortgage babble term” for Down Payment Assistance Programs. These programs USE to be funded by a SELLER paid contribution – these days, however, “the Home Seller can only help buyers pay closing costs by giving a portion of their proceeds back to the buyer at closing, in the form of closing costs. When you are trying to figure out How to Write a Contract With A DAP it can be tricky.
How to Write a Contract With A DAP
It’s not really writing a contract with a Down Payment Assistance Program that’s a problem… frankly it’s getting one APPROVED by the Seller, in today’s Market that can be a challenge.
Why would a Seller Care if the Borrower has a contract with a DAP?
Because we are in a “Sellers” Market, and many times, the borrower who is using a DAP is considered a “weaker” borrower. We’ve been able to “counter” this recently, and had 2 borrowers who are using a Down Payment Assistance get their contract approved.
Here’s what we suggested… both of our borrowers were using a Conventional Loan for their mortgage. A DAP can be used with FHA, VA, USDA Home Loans or Conventional Financing. Each program requires a minimum credit score of 640. This is the NCHFA requirement for the loan.
These are GOOD BORROWERS who simply need some help with the down payment. In our recent situation, the borrowers disclosed really great credit scores the Sellers, and explained their financial situation. Both contracts were accepted, even though there were other contracts being offered on the homes!
Seller Paid Closing Costs
The amount of allowable seller paid assistance depends on the type of loan your are applying for, and the amount of down payment you are making. Generally, it’s between 3 and 6%.
Post “housing Meltdown” there are now many laws, guidelines and regulations on the books regarding WHAT a Seller can “give” a Buyer – and what they are not allowed to give. Sellers are no longer allowed to give home buyers down payment funds.
In fact, there are many situations where the Seller is very limited to what they can even pay towards closing costs!
Even if the Seller can’t cover all of your closing costs – the down payment assistance program can ALSO be used to cover the Closing Costs! That’s why it’s important to know how to How to Write a Contract With A DAP! There’s 3% in FREE $$ available to cover some of the closing costs too!
EXAMPLE: Jane and her dog Spot find a $100,000 home in the Raleigh market. Jane qualifies for the home but does not have the $3,000 needed for an FHA loan. Jane could get a gift from family – OR, if she qualifies, Jane can apply for a DAP with NC Housing Finance Agency! The Down payment Assistance Program offered through NC Housing will give her 3% of the 3.5% she need for a FHA Loan!
When Jane and Spot go to close on the home, the down payment funds are wired from the gift assistance program (NCHFA) to the closing agent. The seller has no part in the transfer of funds.
If you are the agent helping Jane and Spot Purchase this home… there are a few extra forms you need to have signed and presented, and you need to be sure the lender you are sending Jane to talk to have the NC Housing Finance Agency Programs available!
In NC you will need the Amendatory Language signed by all parties. Because these contract documents must be precise, timely and it is somewhat complicated… Jane and Spot DEFINITELY want to be represented by a Real Estate Professional!
Mortgage Tax Program Available in NC
In addition to the DAP funds available to Jane and Spot – they could also benefit from the Mortgage Tax Credit offered through the NCHFA. Again, these funds are not available from all Mortgage Lenders, and they must be completed at the time of loan application.
Through the Mortgage Tax Credit (MCC) Program, you can receive a tax credit equal to 30% of the mortgage interest paid on your loan annually. There’s an additional incentive for those who are purchasing a newly constructed home.
The MCC will also take some knowledge in constructing the Contract to Purchase a Home, and there are documents specific to the program that require a Notary.
With the Mortgage Tax Credit program, the W-4 is changed for the borrowers, allowing them to bring home more money in each paycheck. The paperwork for this is done prior to closing on your loan – so if you purchased a home last year (for instance) and your mortgage lender didn’t offer the NCHFA Program, unfortunately, you are out of luck
For those of you who qualify for this First Time Home Buyer Perk, up to $2000 annually ( or roughly $167 a month) is added to your paycheck as a dollar for dollar reduction of your federal tax liability. The remaining 70% of the interest you pay on your mortgage during the year is still a tax deduction on April 15th!
If you have additional questions about FHA loans, or How to Write a Contract With A DAP… remember, not all mortgage lenders offer the program, and it’s best to always use a real estate professional in these transactions! Call Steve and Eleanor Thorne! 919-649-5058 We offer today’s best interest rates and NC Housing Finance Agency Programs too!