Using Down Payment Assistance For First Time Homebuyers

Gustan Cho Associates are mortgage brokers licensed in 48 states
This ARTICLE On Using Down Payment Assistance For First Time Homebuyers Was PUBLISHED On March 24th, 2020
Which means the use of advance support for first time home buyers
The down payment is the biggest hurdle for any home buyer.

In this article, we will discuss and cover Using Down Payment Assistance For First Time Homebuyers.

Using Down Payment Assistance To Buy First Home

Down Payment Assistance, also referred to as DPA, is available for home buyers.

  • DPA programs are offered through cities, counties, and states
  • DPA programs are not federally funded and/or insured programs
  • It is up to local and state governments to offer down payment assistance home purchase programs
  • Homebuyers, especially first-time homebuyers, may find using down payment assistance programs as a viable option to purchase their home
  • Every DPA mortgage program is different

These DPA programs can provide homebuyers with funds in the form of a grant, gift, or bridge loan to fulfill the down payment on a home purchase.

Importance And Benefits Of Using Down Payment Assistance On Home Purchase

What is the meaning and benefits of using advance help when buying a home

Most mortgage programs allow gift funds by family members to be used for the down payment on a home purchase.

  • However, there are many who do not have family and/or people that can help them with any funds on a home purchase
  • For homebuyers who have no family and/or money for the down payment on a home purchase, using down payment assistance may be a viable option on a home purchase
  • There are various types of DPA home purchase programs throughout the U.S.
  • Some may be free while others have conditions attached
  • Some DPA programs will fund homebuyers the down payment in a form of a zero percent interest as a second mortgage and make it come due when the homeowner refinances and/or sells the home
  • Almost 70% of renters stated that saving for the down payment on a home was the number one barrier in purchasing a home and obtaining a mortgage

Many homebuyers are in the belief they need a 20% down payment to purchase a home. This is not the case. We will discuss the down payment mortgage guidelines in the following paragraph.

Down Payment Requirements On Mortgage Programs

Many homebuyers are still under the impression that you need a 20% down payment to purchase a home.

  • This is not the case
  • VA and USDA loans do not require any down payment on a home purchase
  • FHA loans require a 3.5% down payment on borrowers who have at least a 580 credit scores
  • Borrowers under 580 and down to 500 credit scores can qualify for an FHA loan with a 10% down payment
  • Conventional loans require a 3% to 5% down payment
  • Non-QM mortgages require a 10% to 20% down payment

Most DPA loan programs are geared towards first-time homebuyers in need of the down payment for a home purchase.

Types Of DPA Home Purchase Programs

DPA loan programs offered depends on the municipality and state. One program available in California may not be offered in Texas. There are county DPA programs that are available only in certain counties. For example, a DPA loan program in Los Angeles may not be offered in San Diego. There are so many different types of DPA home purchase programs. Homebuyers interested in a down payment assistance program should check with their local and/or state governments to see the programs available.

Michael Gracz of Gustan Cho Associates is a DPA mortgage expert. He said the following:

When it comes to down payment assistance (DPA), there are two main types of funding measures that borrowers can choose from. The options are a grant or a second mortgage loan, which are both provided through local housing associations, nonprofits, employers or city or county administrators. A grant is an extremely common type of down payment assistance. Oftentimes, you can obtain a grant directly through a third party via your lender if they have a down payment assistance program. These funds don’t have to be repaid; they are essentially free money given to you. Grants also do not place a lien on the home for the amount provided. Many grants are offered through state housing authorities, and the amounts and qualifications vary from state to state. Second mortgage loan. This type of down payment assistance must be paid back. Typically these loans are offered for a specific term at either 0% interest or a low-interest rate. A lien will be placed on the home for the amount taken out for the second mortgage, but the funds can help cover the down payment. It is important to point out that each state has varying down payment assistance programs and eligibility requirements. For example, in Virginia first-time homebuyers can receive down payment assistance in the form of a grant, for up to 2.5% of the home value, and put as little as 1% down on the home through the Virginia Housing Development Authority. In North Carolina, The NC Housing Finance Agency, also known as NCHFA, offers the NC 1st Home Advantage Down Payment. In Florida, first-time home buyers can receive up to 3% of the home value in the form of a grant via HFA Preferred Grant, which are non-repayable funds.

Please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response to find out about a specific down payment assistance program.

Agency Mortgage Guidelines Versus DPA Credit/Income Guidelines

What are the guidelines for mortgage agencies and the DPA loan / income guidelines?

Down Payment Assistance home purchase programs can be used for FHA and Conventional Loans. All DPA applicants need to meet the minimum agency mortgage guidelines. However, the DPA provider will normally have overlays which are higher lending standards. Typical DPA requirements imposed may be the following:

  • Higher credit scores
  • Certain debt to income ratio caps
  • Certain maximum income caps
  • Maximum purchase price
  • Require mandatory housing counseling course certificate
  • Other restrictions and guidelines imposed
  • Repayment terms

Eligibility requirements and guidelines varies from county to county and by state.