Down payment assistance programs are an invaluable tool in helping some homebuyers with their down payment. With that in mind, I’ve invited Alejandro Juarez of AMEC Home Loans to answer a few questions you may have about these programs.
What’s important to understand about down payment assistance programs?
Down payment assistance programs allow you to obtain a mortgage loan and skip the down payment aspect of it. A lot of times, you’ll hear down payment assistance loans get referred to as “zero down” loans because lenders take care of the down payment and build it into the loan itself.
There is a lot of flexibility with down payment assistance loans, and you can receive up to 5% worth of financial assistance from them. If you have a $200,000 loan, for instance, you can get $10,000 worth of assistance, which can cover both the down payment and the closing costs.
What are the requirements of qualifying for a down payment assistance loan?
Credit is a very important thing to keep in mind in terms of qualifying for a down payment assistance loan because they don’t have the flexibility of a normal loan. You need a credit score of at least 620, and you’ll need to fit certain income requirements. In the Austin metroplex and the greater central Texas area, your annual income can’t exceed $93,000.
The most important thing you need to think about in terms of qualifying for one of these loans is whether it fits your needs. A normal loan and a down payment assistance loan look very different, so you’ll need to compare how each option benefits you. Interest rates are generally higher with down payment assistance programs, so make sure the assistance you’re getting is worth the higher interest rate.
According to Alejandro, most clients are happy with this tradeoff because it allows them to get into their very own home, and they always have the option to refinance into a normal loan later on.
Are there any prepayment penalties attached to these programs?
Yes. Some down payment assistance programs have what’s called a “recapture tax.” If, for example, you get an MCC credit and it goes toward your taxes and you sell your home within six months, you may have to repay the tax amount you saved with that program.
Of the down payment assistance programs that don’t have this tax, Alejandro favors the T-Shack loan the most. This loan allows you to provide that assistance in the form of a grant. As long as you live in the home for six months and don’t refinance, you don’t have to pay the amount back.
There are also other loan programs that aren’t grants. Rather, they’re loans attached to the larger mortgage loan, and eventually they will have to be paid back. They’re usually 0% interest loans, but they still get attached to the total balance.
What other ways can you take advantage of these programs?
You can use these programs to save money when you buy a house, as long as you’re buying the house as a primary residence. I brought a client to Alejandro not too long ago who didn’t necessarily need help with his down payment, but he was able to take advantage of the program anyway. His income was just below the limit for the county he was purchasing in and he had a huge amount of savings. Because of this, he was able to use the funds from the program and keep his out-of-pocket savings.
Down payment assistance programs are always changing, so if you’re interested in using one or you have any other questions about them, you can call Alejandro at (512) 710-9456 or email him at firstname.lastname@example.org.
As always, if you have any other questions or real estate needs, don’t hesitate to call or email me. I’d be glad to help you.