Most downpayment assistance programs, often referred to as “DPA programs,” are created with noble intentions. They are made to help people purchase comfortable, safe housing that enhances their longterm financial stability while giving them a house they can be proud of. There is certainly no fault in trying to help people purchase homes.
But these programs fall short. Despite honest efforts by the people creating these programs, they often severely limit the number of homes available to buyers and create challenges in the purchase process.
For this reason, our Dreamhouse Downpayment Assistance Program can be a much better option for buyers who are struggling to generate a strong downpayment.
Some of the highlights include:
- No silent second mortgage and no liens on the title
- Refinancing after six months is allowed
- Nationwide program available to many buyers
- Easy approval process
- Not limited to first-time home buyers
- True Grant 3.5% with no repayment
- Higher debt-to-income ratios allowed
- Can use the grant for the downpayment and/or closing cost
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The Challenges of Traditional DPA Programs
There are many reasons why traditional DPA programs fall short. Frankly, these well-intentioned programs only help about 2% of the people they are supposed to serve. Of course, for the people who can use these programs, they are a major benefit, and we’re not saying they should be scrapped, we’re simply saying they fall short when it comes to helping the vast majority of people.
First of all, there are income limits that restrict access to these programs. To qualify for these housing programs, an applicant’s income cannot exceed 80% of the area’s median income. For San Diego County, as an example, this means the limit is $72,900 for a single individual. In many areas, this income would be significant, but in San Diego, one of the more expensive metro areas in the country, it’s not, to put it lightly, a massive amount.
Most downpayment assistance programs also limit debt-to-income ratios, so if buyers have any significant level of debt they will likely be ineligible. If a non-downpayment assistance program will have a maximum debt-to-income ratio of 50%, a borrower using a downpayment assistance program will be limited to about 43%.
Let’s connect this to the income restrictions we discussed earlier. If someone earns the maximum allowed amount, which is currently $72,900, their monthly income averages $6,075 a month. Assuming the applicant has no other debts, the maximum total property debt they could afford would be about $2,612.25 a month. Again, this may be a high number in other areas but in cities like San Diego, and numerous other markets across the country, it severely limits your buying potential.
The interest rate on these programs can be high as well. Typically they are .25% to .375% above the non-DPA loans. Unfortunately, it does not matter what lender you use, as the rates are all the same for these programs. (With an exception: FHA DPA programs, which have higher income standards and higher interest rates.)
Let’s look at an example of a traditional DPA downpayment assistance program. Let’s assume you need a loan of $350,000 and the interest rate will be 5.375%, a typical rate in today’s market. The payment on this loan would be $1,959.90 a month. A San Diego property at this price range would be a condominium, as you are unlikely to find a single-family home (even a small one) at this price. But with a condo, you’re going to have HOA fees, monthly insurance, property taxes, and other expenses. All of these would account for roughly $600 more on your bill. You’re now exceeding the 43% DTI requirements, assuming you earn the maximum income. So you can’t afford most properties, and the properties you can afford (at least for purchase price) come with fees that make them inaccessible to most buyers.
Some Sellers and Agents Avoid Buyers Using Downpayment Assistance Programs
Even if you can afford a property using these loans, many listing agents do not like to work with buyers using traditional DPA programs. In all honesty, some will resist accepting offers and instead prioritize non-DPA offers.
A home valued at $1 million is typical in San Diego. Properties under this price have an overwhelming amount of market demand, demand that has not slowed with rising interest rates. Many buyers will make offers above the asking price and without an appraisal. Waiving the appraisal is not an option for a DPA-supported loan.
Also, it’s highly unlikely that a listing agent and seller will accept an offer from a buyer using a 100%-financing downpayment assistance program if that buyer has not contractually waived their financing contingencies upfront. This is yet another barrier to the well-intentioned DPA program.
There are just too many challenges that come from a downpayment assistance program. Fortunately, our Dreamhouse downpayment assistance program can help!
How Our Dreamhouse Downpayment Assistance Program Can Help
With our program, qualified FHA homebuyers can receive up to 3.5% of the final amount and use the funds for their downpayment or closing costs. (Or both!) This is a true grant, not a loan, which means you will not have to repay the assistance provided. There is no first-time homebuyer requirement, and no household income limit, so far more buyers can utilize this program.
Also, the program allows for credit scores as low as 640, so even if you have had a few negative marks on your credit profile, there’s a strong chance you will still be eligible. Buyers with debt-to-income ratios as high as 50% are also eligible.
As you can see, the Dreamhouse Downpayment Assistance Program is an overall wonderful option. It allows more buyers to qualify and eliminated many of the barriers that keep people from using traditional DPA programs.
Proud to Provide Real Solutions to Downpayment Challenges
Want to learn more about the benefits of our Dreamhouse program? Contact our team today and we’ll help you get the information you need to make the right choice.
If you have tried traditional DPA programs, or if you want to start the homebuying process from the start, let us help right away!
