Hedging Your Bets in Home Sales
“We’re from the government, and we’re here to help.” There are multiple jokes out there with that as the punch line, but we won’t go down that path today –it could lead to some pretty dark and/or inappropriate places, and this is a family show. I’m not down on the government, and that’s not the point of this week’s newsletter, but this is a cautionary note to all of you out in real estate land about a government program here in Arizona called Pathway to Purchase –I’m sure each state has a similar catchy-named program.
For those who qualify for P2P (we even have a cool acronym, right?), they can get up to 10% of the purchase price or $20,000 (whichever is less) FREE to be applied to the down payment and closing costs. Bring it on! The qualifying individual(s) can have an income up to $92,984 (I’m sure that oddly specific number comes from some pointy-headed individual deep in the bowels of our state’s bureaucracy), and the purchase price can go up to $371,936 (Mr. or Ms. Pointy Head strikes again). A credit score of 680 or higher is required (the guidelines say 640, but believe me, it NEEDS to be a 680), and the property has to be located in one of 26 ZIP codes. If your buyer checks all these boxes, you’re off to the races, right? Maybe.
The program has a $15 million commitment, and it’s available on a first-come-first-serve basis –nothing wrong with the Early Bird Gets the Worm concept. Here’s where it gets . . . dicey–as in, rolling the dice. We as the lender can’t apply for any funds from this program UNTIL THE HOUSE IS UNDER CONTRACT. You read that correctly. What this means is that we can’t give you a reasonable sense of confidence when we prequalify your buyers if we base our qualification on the fact they are relying on the funds to pay for their down payment and closing costs –we can only hand you the dice and hope you roll a good number. Remember, while the program has a $15 million commitment, there’s no way to go to a website to see what’s left in the coffers–and while $15 million is A LOT OF MONEY to all of us mere mortals, that amount doesn’t last very long. We speak from experience from the last time P2P made its appearance here in the Copper State.
We learned something else very interesting from the last time P2P was here acting like Santa Claus: in those eligible areas, home prices went up much faster because buyers were flooding in, making offers, and buying up homes. It’s going to happen again, you know that. We would HIGHLY recommend taking a look at the list of 26 ZIP codes and showing homes to your clients . . . in the next ZIP over –hear me out. It’s likely the home in the unapproved ZIP code is still in the same school district, near the same shopping, etc., but you’ll be able to get a better price for a home for your client or get them more house for the same price as those in the approved ZIP code next door.
One more thing to know about P2P (and many other down-payment-assistance programs), the debt-to-income ratios are lower, and the interest rates are slightly higher. This means your client, if relying on the funds from the program, will qualify for significantly less house.
If a lender approaches you and tells you that they can DEFINITELY get your client approved with Pathway to Purchase funds, ask them to roll up their sleeves and show you their forearms –they’re probably covered with fake Rolexes that you can get for a cheap price. And if you buy one, roll the dice and hope the watch lasts long enough for your client to come to us and get APPROVED with verifiable options.