Using Down Payment Assistance For First Time Homebuyers
- Most homebuyers can afford the new housing payment and the ability to repay their new mortgage loan on a home purchase
- Many times, the proposed new mortgage payment may be the same or even less than the rental payments
- However, many first-time homebuyers often do not have the down payment for a home purchase
- Closing costs may be covered through a seller’s concession and/or lender credit
- Therefore, most homebuyers do not have to worry about closing costs
- Using down payment assistance is an option for first-time homebuyers to come up with the down payment on a home purchase
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
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.
Please contact us at Gustan Cho Associates at 800-900-8569 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
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.
March 24, 2020 - 4 min read