What is Down Payment Assistance?
Down payment assistance programs have been around in some form for decades and they have proven a valuable resource in helping some of our underserved demographics secure the home-ownership dream.
Even though we tend to talk in terms of “down payment” assistance, most of the programs mentioned below can also be applied to your closing costs that are incurred on every purchase of a home.
The majority of programs are designed to help first-time buyers and responsible low-income borrowers.
DPA programs are far from easy money and are most effective when a borrower (and their loan officer) have educated themselves on the programs available in their area. Most of the programs are funded with local dollars.
How to Qualify for Down Payment Assistance
Although we are painting with broad strokes, the majority of down payment assistance programs carry the same three major restrictive guidelines:
- Income limits – Borrower, and sometimes household maximum allowable income is determined by County.
- Debt to Income – DTI for most California assistance programs is limited to 45%. This is well below FHA allowable DTI.
- First Loan Amount Limit – In California, the maximum first loan amount is $417,000 if using a conventional loan, or the FHA loan limit, whichever is less.
Most down payment assistance programs (DPA) require approval for your first mortgage before approval of the program.
First mortgage is usually required to be a 3o year fixed and is usually FHA, VA, USDA or less often, but even more powerful is using assistance with a Conventional first mortgage.
If you are using down payment assistance, the lender is required to overlay additional, usually more restrictive, underwriting guidelines.
If you plan on pursuing down payment assistance you will, for all intents and purposes, be participating in two distinct and typically time-consuming approval processes.
Make sure you plan accordingly and include a MINIMUM of 60 days in escrow on a purchase contract entered into that requires DPA for approval.
Choosing the Right Loan Officer
If you would like to explore down payment or closing cost assistance programs you need to put some time and thought into choosing your lender.
Some mortgage companies offer little in the way of down payment assistance while others make it a feature mortgage product.
Never assume your lender knows DPA guidelines. In fact, most mortgage lenders do NOT know the guidelines and, in many cases, they don’t even offer specialty assistance products.
Make no mistakes, down payment assistance programs DO require loan officer specialization. They are a lot of work from a mortgage lenders standpoint too. Keep that in mind if you inquire and your loan officer goes silent.
Do not wait for them, I can assure that silence is intentional in most cases. Do not let it get you down though. There are lenders that very much want to help you, but they are rare.
You will be able to tell quickly who is willing to help and who is not if you keep that fact in mind.
Some mortgage companies offer little in the way of down payment assistance while others make it a feature mortgage product.
Never assume your lender knows DPA guidelines. In fact, most mortgage lenders do NOT know the guidelines and, in many cases, they don’t even offer specialty assistance products.
Yet another reason to get an early start if you need down payment assistance.
Amazon.com Best-selling author, Shashank Shekhar (NMLS 8176) is a mortgage lender with Arcus Lending, offering loans for home purchase and refinance. Shashank has been featured as a mortgage expert on Yahoo! News, ABC, CBS, NBC and FOX. He has been named "Top 40 under 40" most influential mortgage professionals in the country.
