Many real estate agents have the opportunity to help creditworthy low- to moderate-income individuals and families find homes. As a lender, you are undoubtedly seeking to form relationships with these realtors and want to educate them about DPA programs. Realtors can use DPA programs to help the homebuyer achieve the American dream of homeownership where homebuyers might otherwise be stopped by financial barriers. Do real estate agents in your community understand down payment assistance in all its forms?
Down payment assistance (DPA) programs provide assistance to low-income homebuyers who can’t make the down payment or pay the closing costs a mortgage requires. To help borrowers even further, some DPA programs include 0% interest rates, deferred payments, and forgivable loans. Many DPA programs will offer buyers upwards of tens of thousands of dollars, money that can be applied toward down payments, closing costs, principal reductions, repairs, etc. Typically, these DPA programs are offered by federal, state, and local government agencies, as well as by nonprofit organizations or employers.
Program guidelines can vary, but in most cases, applicants must be a first time homebuyer, defined as someone who hasn’t owned a home in the last three years. The applicant normally must occupy the property as their primary residence, and often the applicant must complete homebuyer education counseling, meet the requirements of the lender and the DPA guarantor, and meet program limits for household income and property price.
Below are descriptions of some of the most common forms of down payment assistance.
State and Local Grants and Programs
Many states and local governments offer help to first-time homebuyers. Local housing agencies—county or city—are also a useful resource. Community grant programs can often provide the best deals for low- to moderate-income homebuyers, in part because these programs are designed to encourage more people to buy and settle in their city limits.
Check your state or community website for information on housing grants and programs available in your area.
Employer Mortgage Assistance
Some employers provide their employees with mortgage assistance programs in a variety of forms.
A borrower may use these funds to cover all or part of the down payment or closing costs subject to the minimum borrower contribution requirements. Employer assistance funds are rarely allowed on a second home or an investment property.
Soft Second
A soft second mortgage combines a subsidized second mortgage with a traditional first mortgage to make housing more affordable for low- to moderate-income homebuyers. There are usually income restrictions limiting who is eligible.
One example is the Chenoa Fund DPA Edge: Soft Second Product. With this product, the borrower receives a 30-year term, 0% rate, no payment second mortgage. Borrowers must meet a minimum FICO score of 620 and have a qualifying income equal or less than 115% of the median income for the county in which the borrower will live. The loan is forgiven as soon as the borrower makes 36 consecutive on-time payments on the FHA first mortgage.
Repayable Second
Repayable down payment assistance programs provide buyers with the down payment they need now so they can buy a home sooner. The funds are delivered at closing.
One example is the Chenoa Fund DPA Edge: Repayable Second Product. This product has no income restrictions for buyers and offers two options for a repayable second. The borrower can choose a 10-year repayable second at a 0% interest rate, or a 30-year repayable second at a 5% interest rate. Borrowers must meet a minimum FICO score of 620.
Chenoa Fund—The Nationwide Down Payment Assistance Program
At Chenoa Fund, we offer DPA in the form of second mortgages. We offer five different second mortgage products, each with their own individual underwriting requirements and guidelines, in an effort to provide options to borrowers of any income and most DTIs. Our options include products for both FHA and Conventional loans; some of our products include 0% interest rates and no monthly payments.
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