Down payment assistance is a topic that has supporters and opponents alike. However, let us be frank, it is an established fact that some among us benefit from a little assistance. This applies not just when it comes to buying a home.
As an example, let us use the Small Business Administration (SBA). The SBA was created in 1953. The purpose or mission is to help small business owners and entrepreneurs pursue the American dream. The SBA is fully dedicated to small business and provides counseling, capital, and contracting expertise as the nation’s only go-to resource and voice for small businesses.
Is there an equivalent when it comes to first-time homebuyers pursuing the American dream of homeownership? Yes, there is, and they are called State Housing Finance Agencies (HFAs).
How Do Down Payment Assistance Programs Work?
One of the foremost affordable housing initiatives that HFAs offer is down payment assistance (DPA). They derive their funds from government allocations or other revenue streams that are tied to their operation models.
According to The National Council of State Housing Agencies (NCSHA), “State Housing Finance Agencies (HFAs) are state-chartered authorities established to help meet the affordable housing needs of the residents of their states. Although they vary widely in characteristics such as their relationship to state government, most HFAs are independent entities that operate under the direction of a board of directors appointed by each state’s governor. They administer a wide range of affordable housing and community development programs.”
Who Qualifies for Down Payment Assistance?
HFAs do not just hand out free money. There are qualifications that must be met by eligible homebuyers.
Most DPA programs target low- to moderate-income homebuyers that fall into certain income limits. These limits are established by the Department of Housing and Urban Development (HUD). HUD develops income limits based on Median Family Income estimates for metropolitan areas and non-metropolitan counties. These are published and updated annually.
There are also credit and debt requirements. Some HFAs even dictate a minimum personal investment of funds on the part of the borrowers.
Finally, there are often homebuyer education requirements. These courses help to prepare new homeowners for the responsibilities of homeownership.
Benefits of using HFA DPA Programs
The main benefit of utilizing a down payment assistance program is simply that it helps to make the dream of homeownership a reality for many that would otherwise not be able to.
This extends beyond just the down payment. As Thomas Jefferson said, “Knowledge is power.” In many cases, people are under the impression that they need 20% down to buy a home. This is simply not true! Homebuyers can get a mortgage loan without having 20% – even without using an HFA DPA program, by the way.
With less than 20% down a borrower will be required to pay for Private Mortgage Insurance (PMI) on a conventional loan, either upfront or typically monthly. However, HFA DPA programs offer special reduced levels of “HFA Charter Coverage” for PMI. This immediately results in lower upfront or monthly payments for the borrower. Another added benefit of an HFA loan is that fees charged to the borrower are restricted or capped further saving the borrower transactional cost.
These are just some of the many benefits of using HFA DPA Programs. The good news is that these programs are widely available. As an organization, Waterstone Mortgage is an approved lender with many State and Local Housing Finance Agencies.
Speak with one of our dedicated mortgage professionals who would be happy to discuss available options with you. We pride ourselves on simplifying the home loan process, so our customers have a clear path to their dream of homeownership.