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Three More Down Payment Assistance Myths Debunked

August 04 2013

Guest contributor Down Payment Resource says:

house moneyPreconceived ideas often keep us from investigating further. In the case of down payment assistance, myths like "it's only for first-time homebuyers" and "it's difficult to qualify" prevent potential buyers from exploring all viable paths to homeownership.

According to the 2013 National Housing Pulse Survey2013 National Housing Pulse Survey, more renters are now thinking about purchasing a home, up from 25 percent to 36 percent. Many of these renters have the income and credit qualifications to buy a home, but simply need to overcome the down payment hurdle. Too often, long held myths about homebuyer programs hold them back.

We debunk three more surprisingly common myths about down payment assistance. Don't miss our first installment where we debunked Myths #1 - 4.

Myth #5: Down payment assistance is only for inexpensive homes

Many people focus on the word "assistance" in down payment assistance, believing it is only for narrowly defined homebuyers and "targeted" neighborhoods of very inexpensive homes. In fact, homes in any neighborhood may be eligible with sales price limits typically ranging from $200,000 to over $700,000 in high-cost markets. On average, 70% of all homes for sale are eligible for one or more programs.

Some homebuyer programs can have income limits of up to 120% AMI and higher, which can amount to well over six-figure incomes in countless markets across the country. In addition, some may offer tiered assistance dollars at varying income levels so higher incomes might yield lower assistance amounts, but higher income isn't an automatic disqualifier. Income limits are almost always based on household size, so limits for a family of five are significantly higher than for a single person.

Myth #6: Down payment assistance is only compatible with FHA loans

While FHA loans are by far the most common to use with down payment assistance, it doesn't mean you can't use other loan products. FHA has more flexible down payment requirements than some other loans so it may be a good fit. Many down payment assistance programs are also compatible with VA, USDA and conventional loans. It's important for homebuyers to know that FHA may be the most popular or compatible first mortgage option, but certainly not the only option.

How do you know what's the best fit? It really boils down to purchase price and assistance amount. For example, if you have $5,000 in assistance on a $150,000 house, that's just under FHA's down payment requirement, so the homebuyer still has to come up with a little extra change. However, if you have $10,000 in assistance on the same $150,000 house that's over 6% down already and may open the doors for conventional financing. There are other considerations including veterans who don't have a down payment requirement, buyers in rural areas who can use USDA loans, and homebuyers using rehab programs, which offer higher assistance amounts.

Myth #7: Down payment assistance programs require longer closing timelines

Many buyers are more than willing to trade a few weeks of processing time to take advantage of the opportunity to gain a little equity and retain some savings. It's true that some of these programs may take a little longer than a typical lender to underwrite, approve, reserve funds, and deliver closing documents. However, the closing timeline must be measured from the date the full down payment assistance application is submitted, not when the opportunity is first discovered. This is where the misconception lies. Buyers can work ahead by completing their homebuyer education course and other requirements upfront – work that will need to be done regardless.

Housing agencies that provide these programs should be considered partners and subject matter experts just like any other lender. REALTORS® can leverage the expertise of these assistance program providers to keep the buyer informed every step of the way. By being prepared and keeping all lines of communications open with your buyer and the agency, you'll be able to meet timeline expectations.

And for buyers who would have stayed on the sidelines for months or years without down payment assistance, the extra steps are well worth it!

Next time, we'll debunk three more myths to round out the top 10.

To view the original article, visit the Down Payment Resource blogDown Payment Resource blog.