Let’s have a real talk about down payment assistance…

Starting with the good news. We can do it, and for almost any loan type to include conventional, VA, USDA and FHA. And we have dozens of options to include true grants (meaning there is no lien and no repayment), and 2nd mortgages for down payment plus closing costs that can be repaid or forgiven.

But, here is the ugly truth most lenders won’t tell you. The folks that need down payment assistance typically don’t qualify for it, and the folks that do qualify typically don’t need it.

Why? When you raise the combined loan-to-value on a mortgage to 100% or higher, getting an automated underwriting approval becomes MUCH more difficult. Plus, rates with down payment assistance are typically (though not always) higher. And somewhat ironically, borrowers typically need to have money in the bank in order to get approval for no money down.

Debt ratios here are key. If you have a buyer trying to stretch their maximum approval, DPA is almost never the best option. Higher rates and more restrictive automated underwriting will LOWER the maximum approval in most cases. For example, I reviewed an application for a client last week that qualified for $325k with standard FHA, but only $240k with FHA using down payment assistance.

So who does down payment assistance REALLY work for? The ideal candidate has a credit score in the mid-600s or higher, low debt ratios, and some money in the bank (or a retirement account). USDA and VA are amazing no money down options, but USDA has very restrictive debt ratio requirements as well as geographic restrictions.

The hard truth is that down payment assistance looks great on paper, but the “free” money is rarely if ever free.

P.S. Our 1% down payment conventional loan is a truly amazing program with market rates and WITHOUT many of the obstacles detailed above.

P.P.S. Reminder that you can now get 100% USDA financing on EXISTING manufactured homes built on or after 2006.