FAQ – Maximum Assistance Provided By Down Payment Assistance Programs

Each Down Payment Assistance Program has a maximum benefit they will provide to a buyer.  Understanding this concept is critical to the buyer because it directly effects the amount of Down Payment Assistance that a buyer will receive.  In most cases, the more Down Payment Assistance the buyer receives,

  • The less money he will need to put down towards Down Payment and/or Closing Costs
  • The lower his payments will be
  • The higher his allowable purchase price will be and the lower his payment will be.

 
You will find the maximum Assistance provided for each program on that programs page.  Each  program break down their assistance into one of three categories.

  1. A percentage of the purchase price.  Example:  3%.  This would indicate that the buyer would receive 3% of the purchase price as Down Payment Assistance.
  2. A fixed dollar amount.  Example: 50,000.  This would indicate that the buyer would receive 50,000 in Down Payment Assistance.
  3. A Capped Blend between a dollar amount and Percentage.  Example,
    1. 33% of the Purchase Price with a maximum of 50,000.  In this example the buyer would receive the lessor of 70,000 dollars or 33% of the purchase price.
    2. 70,000 with a maximum of 33% of the Purchase Price.  In this example the buyer would receive the lessor of 70,000 dollars or 33% of the purchase price.  In actuality this is the same as 3.1 above, but just written differently.

Let’s look at three examples (each using the above three scenarios).  You will see that for different people, different programs will work better.

  1. Buyer qualifies for a first mortgage (without the Down Payment Assistance) of 125,000.
    1. 3% program above:  The buyer will receive 3,750  in Down Payment Assistance.  This allows him to increase his Purchase Price from 125,000 to 128,750.  While this doesn’t seem like a big deal, think about this.  This buyer is probably doing an FHA loan which requires 3.5% down Payment.  3.5% of 125,000 is 4,375 Down Payment that he needs.  He just got 3,750 from this program so he now only needs to come up with 625 dollars in Down Payment.  This principle also applies to the scenarios below
    2. 50,000 program above.  This allows him to increase his Purchase Price from 125,000 to 175,000.  His payment will be the same as it would have been had he only purchased a 125,000 house!
    3. 70,000 with a maximum of 33% of the Purchase Price program above.  This is not as it it appears.  Let’s start with a correction to their stated guidelines.
      1. They say that it is 70,000 with a max 33% of the Purchase Price or 33% of the Purchase Price with a max of 70,000.  This is not possible as it is a circular reference that will never result in a final calculation.
      2. What the mean to say (in 99.99 % of the cases), is that it is 33% of the Pre-Down-payment Assistance Program Purchase Price but in all cases 70,000 Maximum.  Thus, you originally qualified for 125,000, now you qualify for 125,000 x 33% = 41,250(141,250 new Purchase Price).  Because 41,250 is less than the max allowed (70,000) it is within guidelines).
    4. Even though scenario 3 allowed the buyer UP TO 70,000 in Down Payment Assistance, this buyer only qualified for 41,250.  He would have been better off with Scenario two in this case that gave him a flat 50,000 (8,750 more).
  2. Buyer qualifies for a first mortgage (without the Down Payment Assistance) of 300,000.
      1. 3% program above:  The buyer will receive 9,000  in Down Payment Assistance.  This allows him to increase his Purchase Price from 125,000 to 128,750.  While this doesn’t seem like a big deal, think about this.  This buyer is probably doing an FHA loan which requires 3.5% down Payment.  3.5% of 125,000 is 10,500 Down Payment that he needs.  He just got 9,000 from this program so he now only needs to come up with 1,500 dollars in Down Payment.  This principle also applies to the scenarios below
      2. 50,000 program above.  This allows him to increase his Purchase Price from 300,000 to 350,000.  His payment will be the same as it would have been had he only purchased a 300,000 house!
      3. 70,000 with a maximum of 33% of the Purchase Price program above.  This is not as it it appears.  Let’s start with a correction to their stated guidelines.
        1. They say that it is 70,000 with a max 33% of the Purchase Price or 33% of the Purchase Price with a max of 70,000.  This is not possible as it is a circular reference that will never result in a final calculation.
        2. What the mean to say (in 99.99 % of the cases), is that it is 33% of the Pre-Downpayment Assistance Program Purchase Price but in all cases 70,000 Maximum.  Thus, you originally qualified for 300,000, now you qualify for 300,000 x 33% = 99,000.  Because the max allowed is 70,000 you qualify for 370,000.
      4. This time the buyer was better off with scenario 3 as he was able to take advantage of the full 70,000.  This time scenario 3 gave him 20,000 more than scenario 2.
  3. Buyer qualifies for a first mortgage (without the Down Payment Assistance) of 500,000.
    1. 3% program above: The buyer will receive 15,000 in Down Payment Assistance. This allows him to increase his Purchase Price from 125,000 to 515,000. While this doesn’t seem like a big deal, think about this. This buyer is probably doing an FHA loan which requires 3.5% down Payment. 3.5% of 500,000 is 17,500 Down Payment that he needs. He just got 15,000 from this program so he now only needs to come up with 2,500 dollars in Down Payment!
    2. 50,000 program above. A buyer making enough money to buy a 500,000 house probably would not qualify for this program.
    3. 70,000 with a maximum of 33% of the Purchase Price program above. A buyer making enough money to buy a 500,000 house probably would not qualify for this program.
    4. As you can see, at some point a buyer makes to much money to qualify for the big programs, but even the little ones made a huge difference in this case. This buyer purchase a 500,000 house with only 2,500 dollars out of his pocket for Down Payment.

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