“Do I qualify for down payment assistance?”

We hear this question about down payment assistance quite often, and while we would love to provide a straight answer, one does not exist.  So we want to focus on shedding a little light on this extremely common question.  Since the question itself does not have a direct answer, we will point you in the direction of the right questions to ask, and the right people to ask.

Down Payment Assistance Question Answered (Not What You Want To Hear)

First, since the qualification for down payment assistance question seems the most common, we would like to provide a reason why a direct answer does not exist.  The reason: because to qualify for the type of assistance most families have in mind when they ask, they need to know exactly what property they want to purchase.  How many times have you asked your REALTOR® or lender if you qualify for down payment assistance “on this property” and handed them an address?

Right…

Now, we need to back up just a little and explain that a number of different forms of assistance for home buyers exists.  One program does include the first that comes to mind, which is actual cash provided to help with the large down payments many people believe you need to have and/or closing costs.  We will go into this more in just a few moments.  Other programs that home buyers can take advantage of though include Federal Housing Administration (FHA) and U.S. Department of Agriculture (USDA) loan programs, zero-point mortgage programs, and Mortgage Credit Certificate (MCC) programs.

Programs Outside Of Down Payment Assistance

Home Buyer Loan Assistance Programs

A couple of relatively common loan programs include FHA and USDA loan programs.  Since the FHA or USDA insures loan, the lenders can provide more favorable terms such as lower interest rates and smaller required down payments.  Instead of requiring 5-20% of the loan as a down payment, the lenders may not need any down payment or request only 3%.  The FHA loan requirements include; 1.) You must have a credit score of at least 500; 2.) Verifiable income, which can be verified using W-2 statements and pay-stubs, or federal tax returns; 3.) No history of bankruptcy, foreclosure, or short sale within the last 12 months. 4.) You must not be delinquent on your federal taxes, your federal student loans, or any other federal debt.  USDA loan requirements differ slightly, and the property must qualify as well, which you can find here.

Zero-Point Mortgage Programs

These seem less common lately, although since we do not work directly in the mortgage industry we cannot say for certain.  A Zero-Point Mortgage describes a loan where the borrower does not pay any fees, including discount points or origination.  Typically speaking, a discount point would describe money paid up front to lower the interest rate of the loan, for the life of the loan.  The fee a lender charges for all the work that goes into funding a loan they call an origination fee.   Essentially then, a Zero-Point Mortgage would cost the borrower little to nothing out of pocket.

Mortgage Credit Certificate Programs

A Mortgage Credit Certificate (MCC) Program can help first time home buyers save money each year that they live in their home. MCC Programs can differ from state to state, or even county to county in some places.  However, with the Florida MCC Program the homeowner can claim up to 50 percent of their paid mortgage interest each year (capped at $2,000) as a credit on their federal IRS tax return. Any remaining mortgage interest not included as part of the tax credit is still eligible for the home mortgage interest deduction on their federal tax return.

Free Money Grants (Down Payment Assistance Programs)

When families ask about down payment assistance, these programs are what they have in mind.  Any and all U.S. home buyers may apply for home buyer grants, also known as down payment assistance (DPA) programs. DPA programs have wide availability but unfortunately they have low use counts.  One source stated that “87% of single-family homes potentially qualify, but less than 10% of buyers think to apply”.  However, since this is the question many families ask, we want to at least attempt to provide some sort of answer, even if the answer seems ambiguous.  At least you will have that much more information at your disposal.

Down Payment Assistance Qualifications

Down Payment Assistance programs typically base their qualifications for home-buyers on the “area median income”.  Many DPA programs (although not *all*) provide assistance specific to “first-time home-buyers”.  Most programs will also require some type of homeownership education course.  So you noticed a couple of terms in quotation marks… we did that on purpose.  Those terms need clarification for you to better understand the DPA programs.

Area Median Income

What does “area median income” mean?  It means that the programs do not choose some random numbers as income limits. Rather, they base the qualifications on the Fiscal Year Income Limits published by the U.S. Department of Housing and Urban Development (HUD).  You can find the “area median income” for your area at this link.

First-Time Home-buyers

Next, “first-time home-buyers” does not mean that you can never have owned a home in the past.  Rather, it means that you cannot have owned a home in the past 3 years (in Florida, this may not apply in all states).  Odd right?  Now you know why we pointed it out.

Not Created Equal

Finally, you need to know that not all DPA programs provide free money, and not all properties will qualify.  Some programs provide the money for the down payment assistance, but require the money paid back at a later date.   Usually when you sell the home or you pay the loan off, or in other words, when the loan matures.

Am I Eligible?

So how does one determine eligibility for down payment assistance and whether or not this money needs repaid?  You can start one of two ways: contact your REALTOR®, or contact your lender.  A mortgage lender will always have the most up-to-date information as the ultimate resource for all housing financial needs.  However, not all lenders will have the training and qualifications needed to assist you with some of these programs.  Your REALTOR® should have a number of lenders they can refer you to. They know for certain these lenders the training and qualifications needed to work with down payment assistance programs.  Why? Because they have closed a number of deals together as a team in the past and they know the lenders capabilities.  Plus, you should always interview multiple lenders, as explained in a previous article here. EIther way, you need to talk to both, because once you find a lender that has the training, you need to find the properties that will qualify.

Summary

To summarize; homebuyer assistance programs take on many forms, although the “free money” down payment assistance programs many families ask if they qualify for do not have a simple answer.  To determine if you qualify you need to contact the following entities and ask the following questions:

• Contact your REALTOR® and ask for at least 3 (three) lender recommendations that they can vouch have closed deals with Down Payment Assistance programs
• Contact at least 3 (three) lenders and ask if they work with Down Payment Assistance programs and which ones (FHA/USDA loans, MCC Programs, and Down Payment Assistance cash to close programs)
• Choose a Lender you feel comfortable with that provides the services you seek
• Get Pre-Qualified so you know your buying power
• Ask your REALTOR® to send DPA information on any properties you want to seriously consider