DOWN PAYMENT ASSISTANCE

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The purpose of Down Payment Assistance is to aid a First Time Home Buyer in purchasing a home. Assistance for the down payment and/or closing cost may be provided to help you close on the transaction. Keep in mind that down payment assistance is only provided on certain contingencies. Just because you are a first-time home buyer, does not mean you qualify for the program. All programs have their own rules to what makes you eligble for the assistance. My job as a loan officer is to go down the list to see which program fits your situation. Please read below and see what may or may not qualify you for down payment assistance. 

When I review your application, the first thing I review is your credit score. Some Down Payment Assistance programs may not accept your application based on your credit score. It is my duty to see which program will accept your credit score. Most programs have a minimum FICO score of 620. While there are some programs that require no minimum credit score  or a FICO score at all, they have other contingencies that must be met. 

Most Down Payment Assistance programs have set income limits. This basically means you cannot exceed a specific annual income limit based on the area you want to purchase in. If you exceed the income limit (for ex. $62,000 a year for Bexar County) you will not qualify for the program. It is important for me to check if you meet this income limit, hence why I ask for your paystubs to verify income. While there are some programs that have no income limits, they have other contingencies that must be met. 

Another important part of your loan approval is your debt-to-income ratio / DTI. My job as a loan officer is to ensure your application meets debt-to-income ratios. This lets the bank know if you can repay the mortgage loan and the current monthly debt that reports to the credit agencies (such as monthly credit card debt, auto loans, personal loans, child support etc.) On a regular loan, we can definitely push the envelope to see if we can get you approved with a high DTI ratio, but that is not the case for Down Payment Assistance. They have their own rules as to what those max numbers are. If you exceed those numbers, you are not qualified for the program. While there are some programs that have no debt-to-income ratio requirements, they have other contingencies that must be met. 

There are pros and cons of using Down Payment Assistance. One of the pros is getting assistance for your down payment, and one of the cons is having a higher interest rate on your mortgage loan. I always say, "Not all free money, is truly free." As a Finance major, I see that a Down Payment Assistance program may increase their margin in rate, to offset the cost of providing a "forgivable grant." On a regular loan for a purchase, the lender will provide you a par rate, which is a given rate based on the current market and your credit profile, without any discount points. On a down payment assistance loan, the program can increase the rate about 2 points or more based on what the current market is for rates. You can view this in two ways, on one hand, you have a regular loan with the current rate, but you bring your own down payment and the principle and interest payment is set for an amount. On the other hand, you are given the down payment, which helps you save money on your closing cost, but your mortgage payment is higher, for example, by $250 or more per month. This is where you can decide where you find the value of the program. Remeber, the rate is not forever, you can refinance after 6 months of making a payment if rates are lower, if you decide to use a forgivable down payment that is a grant. 

Sometimes, the Down Payment Assistance programs are given in two options.

1. GRANT - This is forgivable after making 6-monthly payments on the loan. If you sell the house, refinance, or take out equity on the home, you do not need to repay the grant used to assist you in making the down payment. 

2. SECOND-LIEN - Property liens are notices that are attached to a piece of real property by a creditor when money is owed to them by the homeowner. Depending on the type, having a lien on your home could mean that you agreed to have your home act as collateral for a debt you owe, such as a mortgage or down payment assistance. This lien can have a fixed term of 1-10 years that will stay filed against the home. This lien may have contingencies such as the sale of the house, refinance, or taking out equity, which will trigger the lien to be paid, before you complete any transaction. This means if you decide to sell the house, refinance or take out home equity before the term of the second lien completes, you will be required to pay back this money before any of these transactions close. To avoid on paying the lien back (aka down payment assistance program used to help you get into the home) you must not trigger the lien to be collected by completing any of those transactions. After the term has been reached, the 2-lien may be forgivable contingent on the program used to help you finance the down payment. Some programs are not forgivable, which is why the loan officer must understand your situation short-term and long-term, for the home you want to purchase. 

Down Payment Assistance Programs are great when there is no more options left to help you purchase the home. You as the buyer can decide whether you see the value in the program. If you can bring your own down payment to the table, I say bring it. However, everyone's situation is unique, in the event you need the help, this what the programs are for. If a program is not available for you, it is not because we are preventing you into getting a down payment assistance, it is likely you did not meet one of the requirements needed to be approved for the program. A loan officers job is to balance all the requirements and ensure it meets program guidelines. Allow me to look at your application to determine which program could be available for you.