Myths of First Time Home Buyer and Down Payment Assistance Programs
Written By Linda Wallace
There is a lot of information out there regarding home financing and many potential buyers are often stopped from pursuing all their options because of preconceived ideas about the process of purchasing a home. When it comes to buyers attempting to enter or re-enter the market, the terms first time home buyer (FTHB) and down payment assistance (DPA) are often thrown into the mix. While these programs can be useful to some, they are not for everyone and there are a lot of misconceptions about what they entail. One of the biggest misconceptions is regarding first time home buyer programs. The name suggests that to qualify for one of these programs, the borrower can never have owned a home when, in fact, for most programs the definition of a first time home buyer is simply not having owned any property in the last three years. Most first time home buyer programs focus on lower down payments and slightly different guidelines to help assist the buyer in qualification. These guidelines often allow for higher debt-to-income ratios, lower credit scores, no reserve requirements and the borrower is often not required to come in with any of their own funds to close. Also, they can often be used in conjunction with down payment assistance programs most of which require that the borrower be a first time home buyer. While this can be very helpful, the expanded qualification often comes at a price in the form of higher fees and/ or higher interest rates.
Down payment assistance programs are an important part of the housing market because the barrier to home ownership for many people is coming up with enough funds for down payment and closing costs. Unlike the FTHB programs, usually more stringent guidelines like slightly higher credit scores, lower debt-to-income ratio requirements and income and purchase price restrictions will apply to the DPA programs. These restrictions can make it especially challenging when trying to purchase in high cost areas where the average home price can make qualification near impossible. DPA programs, just like FTHB programs, often come with higher fees and interest rates which can often add to the challenge of qualifying. A common misunderstanding is that DPA programs cover all funds needed to close. While there are sometimes options for the borrower to get a combination of products to cover all closing costs as well as the down payment, most of the time, the borrowers will need some of their own funds, a gift or a seller credit to cover the actual costs of the transaction.
If you would like to learn more about First Time Home Buyer or Down Payment Assistance Programs please contact your favorite Blue Adobe Mortgage Loan Officer!