Who Can Use Down Payment Assistance With an FHA Loan?
FHA home loans have a minimum down payment requirement set at 3.5%. That is not the size of the down payment you would make if you wanted to eliminate private mortgage insurance from a conventional home loan (the so-called “20% rule”), but it’s definitely not the same financial burden, but some borrowers struggle with the up-front costs of the mortgage and appreciate the lower down payment requirement.
A state or local DPA (down payment assistance) program may offer to help with down payment expenses, closing costs, or both. Down payment assistance programs aren’t standardized and while many have similar features, they are not identical. Not all housing markets have an agency with a DPA program, but many do.
Who qualifies? In many cases, first-time homebuyers are targeted for these programs. The first-time buyer is assumed to need more help financially and otherwise. DPAs are often created with this in mind.
However, you may not have to be a first-time applicant to qualify--especially if several years have passed since you owned a home. Some DPA programs allow you to apply for down payment and closing cost assistance if you have not owned a primary residence within the last three years, treating these applicants the same as newcomers.
DPA programs may (but not always) target specific income ranges. Some DPAs limit their assistance to low-to-moderate income applicants.
In other words, some down payment assistance programs are need-based. You may be required to prove you can qualify with a maximum household income or other restrictions.
It’s true that some DPAs have income caps but you may be able to apply for a waiver or qualify for a higher income cap if you agree to buy a home in a targeted area identified by the government. Be sure to ask about targeted areas and how much consideration you may be offered when buying a home in such an area.
One of the most common requirements of all down payment assistance programs? Most are for owner-occupied residences only. There are often specific prohibitions against such assistance being used to purchase an investment property. Some DPA programs even go so far as to prohibit in writing the use of the home as any kind of rental, owner-occupied or not.
Be sure to ask a participating lender about these rules or any aspect of them you do not understand before agreeing to participate in a down payment assistance program.
And when talking to your lender or a DPA program rep, be sure to ask about any rules that may require you to reside in the home for a specified time as a condition of loan approval, or repay a portion of the assistance instead. Such rules don’t apply in every circumstance but some DPA program rules do include such requirements.
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