FAQ – Purpose/Use Of Down Payment Assistance And First Time Home Buyer Programs
Generally speaking there are three separate types of First Time Home Buyer and Down Payment Assistance Programs and each are designed to help the buyer in a different way. Some programs are specific in their target. Example, they may say that they can only be used to help the buyer with His Down Payment, or perhaps only towards his Closing Costs. Some programs overlap each other and will help the buyer in more than one way. Example, some programs say that they can be used for both Down Payment and/or Closing Costs. When looking at the specific programs page, you will notice that we have indicate all of the possible ways that each specific program can be used.
Down Payment Assistance
Down Payment Assistance indicates that the funds can be used towards the buyers Down Payment. When the buyer chooses his first Mortgage (FHA, Conforming, VA, USDA, etc) that mortgage will have a requirement that the buyer put a certain amount of money down as their Down Payment. For example, at the time this article was written FHA required 3.5% down payment from the buyer.
If the buyer was buying a 300,000 home and getting an FHA first mortgage, then he would need 10,500 down payment (3.5%). The Down Payment Assistance Program that the buyer is using helps to cover some or all of that amount. Here are two examples.
- If the buyer is getting a DAP which provides him with 3% Assistance on his 300,000 purchase, then the DAP would provide 9,000 in assistance. Because FHA required 3.5% down (10,500) and the DAP only gave 3.0% (9,000) the buyer is still required to find the remaining 1,500 dollars that is needed to qualify for the FHA loan.
- If the buyer is getting a DAP which provides him with 70,000 Assistance and as stated above he has chosen a house with a 300,000 purchase, and FHA required 3.5% down (10,500) then in this case the DAP covered all of the Down Payment required by FHA and theoretically the buyer needs no money out of his own pocket for the Down Payment.
Did you notice that I said Theoretically? Remember, sometimes even though the DAP covers all of the required Down Payment, the DAP program will still required that the buyer put in some money. If this is the case it will be specified on that specific programs page.
IMPORTANT: Remember that the Down Payment can never come from the seller. It must always come from the buyer, a DAP, or in some cases a gift from a family member is allowed.
For a great example of how this works, watch the calculator tutorial in the Video Tutorial Section, the link is below. This video went all the way to page one of YouTube!
Want even more information? Watch the First Time Home Buyer Tutorial located in our Video Tutorial Section
Still Have Questions? Call 877-696-7373 x777 or email Don Gardnier at Don@sd4u.com
Closing Cost Assistance
Closing Cost Assistance indicated that the proceeds from the DAP can only be used to help the buyer with the Closing Costs of the transaction. When your offer is accepted, you will enter escrow. From that point on there will be a lot of companies and people working for you (most you will never meet). All of these people have to get paid. Some get paid even if your transaction fails. Example: The Appraiser and your Home Inspector. Some people only get paid if your transaction goes through and you buy the home. Example; Escrow, Title and the Lender. All of these costs, are called Closing Costs. You should count on 2.5% to 3.5% in closing costs. The real amount will not be known until the end of the transaction. The reason for this is that no one knew in the beginning what companies would be used and how much they would cost. Let’s use an example of 3% in closing costs. On the above 300,000 purchase price there would be approximately 9,000 in Closing Costs that you will owe at the end of the transaction.
There is good news. In addition to being able to pay for your closing Costs out of your own pocket, you have several other options
- DAP programs will sometimes also pay money towards your closing costs. In fact there are Some DAP programs that only help buyers with Closing Costs.
- Closing Costs are allowed to be paid by the seller. How much will depend on your loan. Generally speaking on a conforming loan 3%, on a FHA, VA or USDA the seller can pay up to 6% of closing costs. Many agents will tell you that this is not possible. That the sellers will not pay it. This is not true, we get the seller to pay closing costs on most of our transaction. Don’t confuse closing costs with Down Payment (talked about above). Down payment cannot be paid by the seller but closing costs can.
- Your Family can help with a gift if needed.
For a great example of how this works, watch the calculator tutorial in the Video Tutorial Section, the link is below. This video went all the way to page one of YouTube!
Want even more information? Watch the First Time Home Buyer Tutorial located in our Video Tutorial Section
Still Have Questions? Call 877-696-7373 x777 or email Don Gardnier at Don@sd4u.com
Payment Reduction Assistance Through A Tax Credit
This is a fantastic program that most buyers will qualify for. it reduces your net monthly payment through at tax credit. To fully understand this program you must watch the How to use the True Mortgage Calculator video in the Video Tutorial Section. The link is below. This video went all the way to page one on YouTube and you should watch it.
Want even more information? Watch the First Time Home Buyer Tutorial located in our Video Tutorial Section
Still Have Questions? Call 877-696-7373 x777 or email Don Gardnier at Don@sd4u.com
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Want even more information? Watch the First Time Home Buyer Tutorial located in our Video Tutorial Section
Still Have Questions? Call 877-696-7373 x777 or email Don Gardnier at Don@sd4u.com
