A home purchasing practice that allowed sellers to contribute to a buyer's down payment on the purchase of their home, has, at least for the foreseeable future, been banned. One of the arguments against the practice was that sellers would simply increase the sales price of their home to cover the costs. In my experience, this is exactly what happened in the majority of the cases. Buyers understood and agreed to this practice. In effect, what they were doing, was borrowing the down payment, to be repaid over the life of the loan.
This in itself was not a big problem. There was no deception involved between the parties involved in the program. What was perceived as a problem was that the practice drove property values up beyond their true worth. This is probably true. But other factors, in my experience drives properties up beyond their true value. One such factor is long-term low interest rates. During the time when we were blessed with interest rates below 6%, more buyers were able to qualify for a home loan, which in turn, impacted on supply and demand, driving prices upward.
But, back to the down payment ban. A House bill, H.R. 6694, sought to reinstate down-payment assistance before the implementation of the ban on October 1, 2008. Unfortunately, at least for the proponents of the down payment assistance idea, the bill did not make it to a full vote of Congress in time.
In my opinion, it's difficult to justify these programs at a time when real estate values have been declining. If a buyer purchases a home today for $200,000 and it decreases in value over a 2 or 3 year period to $190,000, the buyer is 'upside down' on a mortgage in which he has no money invested. If a job transfer comes up, and the homeowner who probably doesn't have any more cash available today than he did 3 years ago, cannot sell his home. His options are to turn the home into a rental, or walk away from the home. Unfortunately, the latter is what too many buyers have been doing.
For information on the San Antonio housing market, call me at (210) 681-5252, or send an e-mail to me at: EdBarrett@satx.rr.com.
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