Mortgage Lenders Guide To Down Payment Assistance

Down Payment Assistance Programs (DPA Mortgage Loans) are sponsored by federal, state, and local governments, private nonprofit organizations, and even some credit unions. They offer traditional loans, no-interest loans even forgivable loans. Other organizations also provide grants for others who need help buying their first home.

How Down Payment Assistance (DPA) Works?

For a renter having a hard time coming up with enough money for a down payment on your first home, a DPA program could be the answer to your problem. A Down Payment Assistance Program could be the answer to your problem.

Down payment assistance is a funding option that makes it easier for (usually) first-time homebuyers to come up with the money for a down payment. Government, public agencies, and private organizations offer DPA programs.

As a borrower, you may need to meet specific income requirements and promise to live in your home for a certain number of years. There are three kinds of Down Payment Assistant programs.

• Grants - Grants are popular because there is no repayment required. The money you receive through a down payment grant is "free" money. And they say there is no such thing as a "free lunch"! No matter what amount your proposed down payment is, a grant can be used to cover all or part of it.
• Forgivable loans - often with 0% interest – are another attractive down payment assistance option. You won't have to pay back your loan if you meet certain conditions. you might have to agree to live in your new home for a specific number of years or work in a particular profession, such as law enforcement or public education, for a set number of years.
• Deferred-payment loans - Deferred-payment loans do require the loan to be paid back., But often come with 0% interest and often don't need to be paid back until several years after you've borrowed the money. With a deferred payment loan, home ownership is attainable as well.

How Lenders Suggest Options For DPA Program

Down payment assistance grants are the best option for homeowners who need help with down payment funds. Nonprofit organizations, employers, and local housing agencies usually offer these grants.

• Down Payment Assistance Loans - This is a forgivable loan used to cover the down payment. This loan doesn't have to be repaid.
• Good Neighbor Next Door -
  • The Good Neighbor Next Door program is available to law enforcement officers, pre-k to 12th-grade teachers, firefighters, and emergency medical technicians. If you live in a Department of Housing and Urban Development revitalization area, you're eligible for a 50% discount on qualified HUD listings in your state.
  • This is a 50% discount. If you live on the property for at least three years, you won't have to pay any interest or payments on this second mortgage.
  • If you buy a home through this program, you'll only have to come up with a minimum down payment of $100.
• HUD Home Buyer Programs - The U.S. Department of Housing and Urban Development offers the most comprehensive list of down payment assistance programs across the country.
• Chenoa Fund - The Chenoa Fund, by CBC Mortgage Agency, a housing finance agency. The fund provides down payment assistance to low- to moderate-income homebuyers across the country, excluding New York state.

This is a forgivable second mortgage loan with 0% interest to cover your down payment costs. Depending on the size of your down payment, this loan will be forgiven if you make 36 or 120 consecutive on-time payments.

Eligibility For Down Payment Assistance

As good as all of these Down Payment Assistance programs sound, there is a drawback. Not every hopeful new home buyer will qualify. Both the property and the buyer must meet eligibility requirements. Unlike more conventual mortgages, things like income, home price, creditworthiness, employment, and debt-to-income ratio, also play a part. The parts in question?

Income. You can't make too much money. This varies by program, but generally, your income needs to be less than 80% of the local median income.

Creditworthiness. You'll need to have at least a minimum credit score. Usually 620 to 640 or more; this varies by program.

Debt-to-income ratio. There may also be limits on the borrower's debt. That is the percentage of monthly debt payments as a percentage of monthly income. This also varies by program, but the DTI ratio is usually 43%.

Home price. Programs also may only assist buyers who are hoping to buy a home selling for about the median local price.

Occupancy. You must promise to live in the home for a set length of time.

Prior homeownership. These programs may be limited to first-time homebuyers.

Down Payment Assistance. Does It Work for Your Situation?

After thoroughly exploring these options, you probably have a good idea of when you qualify. Find a lender or a broker and get an expert opinion if you think that you do. Mortgage lenders are anxious to gain clients, so they'll not only be upfront with you about your ability to qualify, but they will also have alternatives if you don't.