Can you qualify to buy a home now? Many renters actually have the income and credit qualifications to buy a home, and simply need to overcome the down payment hurdle. Too often, long held myths about homebuyer programs can hold you back.
We debunk three more surprisingly common myths about down payment assistance. Don’t miss our first installment where we debunked Myths #1 – 4.
Down payment assistance is only for inexpensive homes.
Don’t let preconceived ideas about programs throw you off. Down payment programs aren’t just 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. In a report we did with RealtyTrac, we found that 87 percent of homes are eligible for one or more programs.
Some homebuyer programs can have income limits of up to 120 percent of the area’s median income (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.
Down payment assistance is only compatible with FHA loans.
While FHA loans are the most common to use with down payment assistance, it doesn’t mean other loan products are off the table. 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.
How do you know what’s the best fit? It really comes down to purchase price and assistance amount. For example, if you have $5,000 in down payment assistance on a $150,000 house, that’s just under FHA’s down payment requirement of 3.5 percent, so you would need to come up with a little extra to complete the down payment requirement.
However, if you have $10,000 in assistance on the same $150,000 house that brings you to more than 6 percent down and may open the doors for conventional financing, helping you reduce your mortgage insurance and fees. Keep in mind there are many other factors, including veterans who don’t have a down payment requirement and buyers in rural areas who can use USDA loans.
Down payment assistance programs require longer closing timelines.
It’s true that some of these programs may take a little longer than a typical loan 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. That’s where the misconception lies.
So, do yourself a favor and research these programs early. By completing homebuyer education courses and other requirements upfront, you are shaving off that time. Bottom line: you’re trading a little extra legwork to gain immediate equity and retain some of your savings.
Housing agencies who provide these programs should be considered partners and subject matter experts. Ask your agent agent or lender to keep you informed during the process so you meet your timeline expectations.
Next time, we’ll debunk three more myths to round out the top 10.