Down payment assistance programs

13 Replies

Is it a good idea to use a down payment assistance program? I want to get a house and I don't have quite enough for a down payment I'm trying to think of ways to come up with a down payment I'm planning to use an FHA loan.

Originally posted by @Franklin Marte :

Is it a good idea to use a down payment assistance program? I want to get a house and I don't have quite enough for a down payment I'm trying to think of ways to come up with a down payment I'm planning to use an FHA loan.

FHA loans are very common for first time home buyers. Talk to a mortgage broker in your area. There is also USDA for rural properties and VA for veterans.

@Franklin Marte

Depends on your property location and situation. Usually, no. Most of the time the "assistance" is actually a disguise for a higher interest rate and a 2nd lien against your property that you may or may not have to pay pack. And even if you don't have to pay it back, it's usually forgiven over time, which means you are locked into that loan or you have to pay it back anyway. No such thing as a free lunch...

Do you have to go with FHA? If you can go with Conventional financing, there are creative ways without much down. For example, I just helped someone buy a $192K house with literally ZERO money out of pocket using a Conventional 3% down loan in combination with seller credits and lender credits. (Full transparency, they needed to pay earnest money and appraisal upfront, but got those back at closing.) WAAAAYYYYY better than down payment assistance because they got a lower rate and weren't stuck.

FHA is good too but there is a 3.5% minimum investment requirement. Which means that even if you get some credits, you still have to verify that you have the 3.5% down. However it can come from gift funds, and there are ways to get creative with that too.

It's also possible that DPA is the best option for you.  For some people, it's the right move.

Not sure where you are located, but if you need a rockstar loan officer, let me know.  I have a small network of top tier colleagues across the country.  The kind of people you won't find by calling a bank or an internet lender and know how to get stuff like this done.

Best of luck!

most of the time the benefits are out weighed by the cons because the higher rate and added costs, the control you give up at times, or 2nd and 3rd position liens you add on your property makes it tough to justify.

However the pros are pretty good too they can allow you to buy a property with as low as nothing down and no money out pocket depending on DPA programs in your local area.

The biggest problem with down payment assistance is finding a cooperative seller. You can’t be picky in the house. It helps being an investor as we are looking for distress anyway, but for a buyer looking for cute it’s very hard.

Closing costs for the loan are almost double.

$8k for $200k home. In retail you run into serious appraisal problems in a competitive market.

That said, this is how I bought my house which launched my investing career. I found a distressed seller and they covered everything. 

Following this thread because I have the same question as @Franklin Marte , although my situation is slightly different I am interested in the replies. I will be using my VA loan in Jacksonville, FL and I want to put a down payment towards the property, I too have read about ways to use down payment assistance however until now I am learning it may not be a good idea. Interesting..

I've also been looking into DPAs in Jacksonville and this thread has been very eye-opening and helpful.  I'm a newbie and quite ignorant to financing, but @Zack Karp it sounds like you're saying that it might be better to find a distressed seller, make them a solid offer, but ask for a credit after closing? For example, for a house where an $8k down payment is required, I could just ask the seller for an $8k credit after closing and I would basically be getting the house for no money down since I would get the down payment right back? Can you also explain what "lender credits" are and how common they are to come across? Thanks for all the great input in this thread everyone!

Originally posted by @Anthony Hale :

I've also been looking into DPAs in Jacksonville and this thread has been very eye-opening and helpful.  I'm a newbie and quite ignorant to financing, but @Zack Karp it sounds like you're saying that it might be better to find a distressed seller, make them a solid offer, but ask for a credit after closing?  For example, for a house where an $8k down payment is required, I could just ask the seller for an $8k credit after closing and I would basically be getting the house for no money down since I would get the down payment right back?  Can you also explain what "lender credits" are and how common they are to come across?  Thanks for all the great input in this thread everyone!

Problem is Anthony you will have to move to Jacksonville because all DPA programs out there are 99.9% for primary occupants, lower to median income borrowers, or a combination of the requirements.

So are you looking at this to get into an investment property?

If so you could try 1-2 unit DPA programs in CA state and house hack the other unit while providing housing for your self in a unit. 

There are mortgage credit certificates-MCC you can get if you're a first time buyer that will give you a tax credit of 20% on all of the interest you pay annually in addition to your tax deduction for the remainder of the 80% of the interest. (tax credit vs tax deduction = credit way way better almost 3-4X better)

A good strategy is combining a MCC with a DPA program.

Most of the folks I utilize these for have to make anywhere from 140% of area median income down to 80% of median income. So if you may too much money that might be a "good," and "bad," problem too lol.

Best,

@Anthony Hale yes that is correct, sort of.  If the down payment is only $8K, and you can write an $8K seller credit into the contract, yes basically then the net result is a $0 down loan.  However, the seller credit is toward closing costs and prepaids, not down payment.  But in the right situation, it can cover everything.  Depends on the loan program, the state/county/city and how property taxes are paid and the tax proration credit, etc.  Lots of variables.

Lender credits are by giving you a higher rate than the going market (par) rate.  For example, let's say your par rate today is 5%.  I could instead give you a rate of 5.5% and give you 2 points in lender credits.  Typically, your break even point for this is around 5-6 years.  So if you are going to sell the property or refinance in the first 5-6 years, you are better off taking the higher rate and getting a lender credit.  If not, you are better off taking the lower rate, and even maybe paying points for an even lower rate.

These are all things that a rockstar loan officer should be going over with you.  You won't get this level of strategy from the order takers at most banks or online lenders.  If you need someone like that in Jacksonville, let me know.

Best of luck!

@Rob Scott III Normally for VA loans the main benefit is going to be 0% down needed. Unless you are trying to get your payment to a certain number I would keep the money in your own pocket. Keep in mind you will still need to pay for your own closing costs even with a 0% down loan. Your funds might be better used for that if there is no assistance being provided from seller or lender. Normally most down payment programs are associated with FHA or Conventional type loans since they require 3-3.5% down.

There are however some down payment programs for VA but very rare since you are already getting the benefit of no down needed. You should speak with a Licensed Mortgage Broker for FL to assist you with finding out the best options. You are more than welcome to send me a PM and we can chat about some good choices.

@Anthony Hale there are plenty of alternative choices for getting assistance from a lender to help with closing costs. If you are work with a mortgage broker they have options for nationwide downpayment assistance programs that might be able to help out. One example would be 1.5% down for FHA type loans rather than the full 3.5%

Lender credit just depends on the margin the lender you are working with has, your personal qualification of the loan such as credit score, the amount of the loan, and the way the market is.

If you qualify for down payment assistance, take it.  You will need to owner occupy for a number of years and in some cases, you will have to pay it back.  These programs are not designed to help someone start their investing career.  They are to help lower-income people become homeowners.  You will not make money on it in the short term.  There are too many rules and regulations to allow anyone to make money on these programs.

As far as owner assistance and carry back, you are going to have a difficult time making it work with a Fannie Mae standards loan. That does include VA, FHA. They will ask you to source the money for the down payment. Fining a motivated seller that wants to wait 30-45 days and make repairs to the house passes the mort co inspection, is an unusual situation. There are plenty of investors that will pay cash and close in a week. The market is competitive and finding these kinds of deals has become difficult.

Each market is different. The main reason most DPA programs are not promoted by most lenders is the DPA programs cap their commissions. Boo hoo. Most DPA are getting up to speed and can close within 30 days. In CA its a big help. It will pay off to do as much research as you can, its a city by city, county by county, state by state specific. FHA is just the tip of the iceberg. Often times you can layer an FHA loan and DPA on top of each other. IF you are in CA I can direct you to some great programs.