How does Down Payment Assistance work?

[Account Closed]

How does Down Payment Assistance work?

Is this debt financing for a number of years? Or equity?

[Jon Holdman]

Say the seller has agreed to take $1,000,000 for the property. Your lender says they will loan you 70% of the value. By "value", lenders mean the appraised value or the selling price, whichever is less. You know this property will appraise for $1.5 million.

You and the seller write a contract with a selling price of $1.5 million. The appraisal is done and it does appraise for $1.5 million. The bank agrees to lend 70% of that, or $1,050,000. The DPA lender kicks in $450,000, and wants a fee of $50,000. On the day of closing, both the bank and the DPA lender put in their money. The title company sends the total of $1.5 million to the seller (ignoring costs here). You get the deed and two loans.

After closing, the seller sends $500K to the DPA lender. That's the $450K loan and the $50K fee. That loan is paid off. The seller is left with a new of $1,000,000, which is what they wanted. You have a property and a $1,050,000 loan, which is what you wanted (more or less.)

Now, is this legitimate? I don't know. If it was a RESPA loan, no. But a commercial loan? The lender also has to be willing to have the down payment magically appear right before closing.