In late January of 2021, the FHA made a formal announcement that individuals classified under the “Deferred Action for Childhood Arrivals” are legally permitted to receive mortgages supported by the FHA. Previously, this national benefit was in question, but as long as an individual is legally permitted to work in the United States, they are now legally able to use FHA loans.
FHA Loans Now Available to DACA Recipients or “Dreamers!”
Previously, this benefit had been in question, not only throughout the Trump presidency, but during the Obama administration as well. Before the announcement, the FHA’s guidebook included a statement that said people without “lawful residency in the U.S. are not eligible for FHA-insured mortgages.” This language was placed in the FHA handbook by the Obama administration but, according to the release, actually goes back to 2003.
The situation and language is complex because, technically speaking, DACA recipients did not enter the country legally but are still lawfully present in the country. To avoid confusion, the FHA is simply dropping this language entirely.
FHA loans, which are supported by the federal government, are an important program for borrowers across the country. With low downpayment requirements and options for borrowers with low credit, these loans are often the best choice for many borrowers. For this reason, the availability of FHA loans to DACA recipients is an important change.
Requirements for DACA Recipients Using FHA Loans
Loan Must Be for Personal Home
One of the top requirements for DACA recipients is that the loan must be for a borrower’s principle residence. The financing cannot be for a second home or a vacation home, and investment properties cannot be purchased with these loans. It may be possible to convert the purchase into an investment property in the future, and multi-unit residences could be eligible (you’ll have to occupy one unit), but initially the purchase must be your principle residence.
Valid S.S. Number Required
To use these loans, a basic requirement is that you need to have a valid social security number. However, if you are employed by the World Bank or a foreign embassy, you may be able to secure financing without a Social Security number. Certain employers identified by HUD could also have employees who are eligible without a Social Security number.
Must Be Eligible for Work in U.S.
Another requirement for these loans is that you must be eligible to work in the United States. Because the recipient is living in the U.S. and earning an income here, the FHA wants to make sure that all borrowers have a legal source of income. This is also important for lenders, as they need to ensure that the income will not be revoked or cancelled abruptly for any reason.
To prove that a DACA recipient is eligible for employment, they will have to provide an Employment Authorization Document, which will verify the work status. Even if you are currently working, and can demonstrate your income through paystubs, bank statements, and other information, you will need to provide this document. If the document is set to expire but the DACA recipient has a history of residency-status renewal, the lender may assume that continuation will be granted. However, if there are no renewals, it’s up to the lender to determine the likelihood that a renewal will be granted.
Must Meet Same Basic Lending Requirements as U.S. Citizen
Finally, the borrower on these loans needs to meet the same basic standards that all U.S. citizens would need to meet. This includes specific requirements for credit scores, downpayment, debt ratio, and more.
For example, the FHA has requirements for credit and downpayments, which are related. To use these loans, you will need a credit score of at least 580. There are also eligibility requirements related to downpayments; you’ll need a downpayment of 3.5%, although this may be higher if your score is not great.
Benefits of FHA Loans
Why is this such a big deal? After all, there are other loans available, and DACA recipients can find other sources of lending. FHA loans, however, bring a variety of benefits that other mortgages can’t. The biggest difference is that these loans are supported by the FHA (Federal Housing Administration), which means they have the full support of the United States government. Because of this support, the risk to lenders is reduced; because the risk is reduced, lenders can offer fantastic loan terms and qualifications.
Decent Credit = Low Downpayment
To qualify for support from the FHA, the borrower must meet certain credit requirements. However, these requirements are often lower than many other loan options, and people with quality credit (but not necessarily stellar) can qualify for a loan with a low downpayment.
If you have a credit score of 580 or higher, you can secure an FHA loan with as little as 3.5%. So let’s assume you are buying a house with a total purchase price of $400,000. In this case, a 3.5% downpayment would be $14,000. That’s far less than other downpayment requirements; some require as much as 10%, which in this example would mean $40,000.
The FHA is also available for borrowers with scores lower than 580. If your score is between 579 and 500, you can still qualify for an FHA loan. However, you will need to bring a 10% downpayment.
It should be noted that these are base requirements. Lenders can place additional requirements on qualification and still have FHA support for their loan; they just can’t require less. (For example, they can’t receive FHA support if the borrower only has a 2% downpayment, but they can if it’s a 5% downpayment.)
Get the Service You Deserve from a Dedicated Team
If you are a DACA recipient or a “dreamer,” and you’re interested in purchasing a home in the United States, contact our staff today. We are proud to serve people from all walks of life, and we would love to help you find the right mortgage loan for your specific needs.
An FHA loan can bring numerous advantages, but we’ll show you all the best options so you can make an informed, confident decision on your home loan!