First-time homebuyers and down payment assistance programs

May 27, 2010 Down Payment Assistance (DPA) Programs for First Time Homebuyers By: Michael A. Foote, CMB

There is money available for first-time homebuyers today. In a much-needed addition to the financing products available today, down payment assistance programs are once again available. Down payment assistance programs are typically a federal, state, or local grant or bond program designed to help certain people with certain income levels in certain areas with money that can be used for a down payment and costs of closing on many purchase loans.

These tax-free grants or loans are generally forgivable as long as the buyer stays in the home for a designated period of time. And these dollars can drastically change the amount of money required at closing when these first-time homebuyers purchase a home. For example, a typical FHA borrower may need to contribute more than 4-7% of the total sales price, while a borrower with a WISH down payment assistance program may only need to contribute a total of 2- 3 %. That’s a lot of money in a multi-hundred thousand dollar transaction. If you write off that difference, the savings are literally tens of thousands of dollars, since most of the closing costs are financed by the new mortgage.

So what does the process with “DPA” look like compared to the regular loan process? Quite frankly, it seems less for the user to the extent that the lender will usually have to deal with the extra hoops during the process. To the borrower/buyer they probably won’t know the difference. The only real difference is that the loan processing time may be a little longer. So is DPA a good idea? Well, lately it’s been a challenge for realtors to get clients to use FHA let alone FHA WITH down payment assistance, so one could argue that using DPA in an offer to purchase could be a determining factor for the seller’s side when he chooses the offer. to open the escrow with. The only cure for this pitfall will have to be more products on the market for properties up to the $400,000 range, as DPAs typically serve no purpose and no qualified borrowers as sales price rises and/or in high-income areas. per capita. DPA certainly has a place in today’s financial landscape and those in the industry are happy to have it, as one more tool to increase home ownership for low to medium income families. And this product will help sell the predicted hidden inventory rumored to be lurking just around the corner.

Only time will tell if that comes to fruition or not. These programs are not free of abuse, there have been DPA related scams in the past and officials, lenders and large institutions have really reduced what is allowed as DPA. The economy also influences the availability of these at all times. There are many DPAs completely depleted of funds.