Live The American Dream – Home Mortgage Financing

The federal government wants you to own your own home. In fact there’s $200 million available right now to prospective first-time home buyers. President Bush signed into law the American Dream Down-Payment Initiative (ADDI) also known as The American Dream Act. The act helps first time homebuyers with down payment and closing costs, usually the biggest hurdles in the way of a first time home purchase.

The American Dream Act is known as a government home buyer program. shows there are four primary way for a home buyer to purchase a home with no money down.

Lender provided financing is simply what is stated. Some lenders provide 100% financing, while others provide 103% financing, where the lender actually includes the down payment in the lender originated loan.
Some government agencies such as Fannie May and FHA provide what shows as a Flex 97 mortgage. Those mortgages allow the buyer to finance 97% of the purchase price and get creative with the down payment. Creative sources such as “a gift from a family member; a loan secured by a marketable asset (such as a certificate of deposit, a 401(k), the cash value of your life insurance, or other real estate); or a loan or grant from a nonprofit or government agency.”

A federal or private grant is the second option shows to prospective home buyers. The American Dream Act or ADDI provides those types of grants.

Here’s how the program works: You must be a first time home buyer, but that doesn’t mean you haven’t ever owned a home. By definition under the act, a first time home buyer hasn’t owned a home for three years prior to the purchase. So even if you have owned a home before now, you may still qualify.

ADDI provides down payment, closing cost and home rehabilitation assistance, if needed, up to $10,000 or six percent of the purchase price of the home, whichever is greater. To apply contact your local HOME administering agency or the state in which you live.

ADDI is an example of federal assistance, but there are private charities providing gift assistance much in the same way. Those are known as Down payment Gift Assistance programs. Those involve the seller to participate.

Home sellers usually include some negotiating space in their selling price. In a gift assistance sale, the seller agrees to a higher price for the home, and basically, gives a portion of the proceeds back to the buyer to cover down payment or closing costs. Law prohibits sellers from


giving home buyers down payment funds, so the gift assistance programs step in to “work around” those laws.

For example, you find a home you want to purchase for $250,000. The seller needs at least $200,000 to pay off his mortgage, so he is asking to make $50,000 profit. But, the seller is also willing to settle for only $25,000 profit. The seller enrolls the home in a gift assistance program at the value of $250,000. The gift assistance program sets aside the $25,000 down payment plus a participation fee. ( shows fees are usually 0.75% of the home’s selling price.) The buyer then secures a loan for $225,000 from a lender, expecting a $25,000 down payment. At closing, the gift assistance program wires the $25,000 already set aside, to the buyer as down payment. The seller basically cut his profits in half to give the buyer $25,000 cash down to satisfy the loan from the lender. But, keep in mind, the seller’s bottom line was $225,000 to begin with. From the seller’s perspective, his home actually sold for $225,000, while the buyer purchased a $250,000 home.

Buyer-Seller Negotiated No Money Down Real Estate Financing: lists three options for a home buyer under this category. An assumable mortgage allows the buyer to simply assume payments of the current owner’s mortgage. Purchasing Subject to a Mortgage allows the buyer to make the monthly mortgage payments but the original owner is still liable in case of default. If you find a seller willing to finance, the seller agrees to accept all or part of the purchase in the form of monthly payments.

Now time to get creative. A lease option or more commonly known as rent-to-own is one option you’ll find at Basically, the seller carries the mortgage and allows the buyer to take possession of the home, while making monthly payments toward the purchase price. The details will have to be negotiated. Some sellers only allow a specific time period for rent-to-own, and some only apply a portion of those payments toward the purchase price. A warning; however, for the buyer: Some sellers require the buyer to find their own financing within a specified time period. If the buyer’s financing isn’t approved, some seller’s force the buyer to forfeit all previously made payments.
And finally, get really creative! Buyahome-no-money-down shows some sellers and lenders allow the ” use a gift from a family member; a loan secured by a marketable asset (such as a certificate of deposit, a 401(k), the cash value of your life insurance, or other real estate” as the down payment.

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