Down Payment Assistance Programs (DPA) provide a boost over a major hurdle to homeownership– cash for the down payment. Most loan programs allow a seller to pay some or all of the buyer’s closing costs, but will not allow them to contribute towards the down payment.
In general, a borrower’s down payment must be from their own funds. That is typically defined as:
- Checking or Savings
- Investment accounts (like a 401k or IRA)
- Gift from a family member
- A valid DPA program
Down payment funds cannot come from:
- Seller, Agent, Lender
- Non-family member
- Unsecured loan
- A non-verified source
We routinely see borrowers who qualify for the DPA program negotiate the seller to pay closing costs and get into a home with little or no money out of their pocket.
Of course, there are always drawbacks to consider when selecting any loan option and we will sit down with each borrower to make sure they have the right fit.
DPAs often have restrictions on the amount of income a borrower can have, the purchase price or location of the property. The monthly payments may be higher if the funds come from a DPA program if that program requires certain loan products to be used in order to obtain the assistance. There is also the question of competitiveness in the market. Because some programs have additional processes for obtaining the assistance, it can create a longer required closing period.
When the inventory of homes for sale is low, a seller may have multiple offers, putting them in a position to choose among them. Arizona lenders are required to indicate when a buyer is dependent on down payment assistance in obtaining their loan pre-approval. All else being equal, a seller may be concerned with the additional challenges of the program and opt for an offer which is not using a DPA program.
We present a borrower with all options available to them and help them balance out 4 key factors:
- How much money will be needed at closing
- What is their monthly payment
- What is the overall cost of the loan
- How competitive their offer is in current conditions
Every option has benefits and drawbacks. Working with the Heath Team, our borrowers have the underlying information to make the best decision for them and their families.