No, FHA Loans for Dreamers are Not Possible. But there are Options!
UPDATE: AS OF JANUARY 2021, FHA LOANS ARE NOW AVAILABLE FOR DREAMERS!
Are FHA loans for Dreamers a possibility?
There is some uncertainty about this topic, and even though the Department of Housing and Urban Development (HUD) attempted to clear the air, many people are still confused about the issue.
After months of uncertainty, HUD finally decided to clarify the issue with a statement, giving a final answer.
That answer is no, DACA recipients, commonly known as “Dreamers,” are not eligible for loans supported by the Federal Housing Administration (FHA), which is a branch of HUD.
In a letter sent to Representative Pete Aguilar of California, HUD Assistant Secretary for Congressional and Intergovernmental Relations Len Wolfson made it quite clear that Dreamers will not be eligible for FHA loans. There are options, but at this time mortgages supported by the FHA are not available for DACA recipients.
What are “FHA Loans?”
The FHA is one of the most important government organizations for the real estate and mortgage sector, but they do not actually lend money for the purchases of housing. Instead, they seek to stimulate the market and encourage homeownership by insuring loans.
Basically, the FHA provides insurance to lenders. If a loan insured by the FHA goes into default, the FHA will provide financial compensation to the lending institution. Therefore, lenders are well served to have this insurance on their loans. But it doesn’t just benefit the lenders. The support provided by the FHA makes home loans readily available to more borrowers, and the credit, downpayment, and qualification requirements can be easier. In some cases, borrowers qualify for FHA loans when no other option would be available. So while the insurance seems to directly support lenders, it does benefit borrowers as well.
But the FHA does not provide insurance to just any loan. Instead, they have clear guidelines for qualifying loans; only loans that are within these guidelines will be insured by the FHA.
Why No FHA Loans for Dreamers?
While there seems to have been a back-and-forth policy in regards to FHA loans for Dreamers, the final conclusion to not offer these loans is relatively simple. Basically, it seems HUD is saying that FHA loans are available for U.S. citizens only, and because DACA recipients are not technically U.S. citizens, they are ineligible for these loans.
The letter from Sec. Wolfson stated that HUD does not determine U.S. citizenship or immigration status, which is the responsibility of other cabinets and offices. Basically, they rely on other organizations to make this determination. Because DACA does not confer lawful status, Dreamers therfore remain ineligible for FHA loans.
According to the letter, this is not a change in policy, but rather a continuation of the same rules and regulations that have been in place for years. Wolfson states that the policy has been in place since 2003, and it was published in various guidelines.
But there were articles and real-estate news sources that discussed FHA loans for Dreamers and said they were an option. Under certain circumstances, it appeared the DACA recipients could use these loans. Now, however, that option appears to have faded.
Whether they were or were not available in the past is a matter of discussion. But as of now, the issue is clear: no FHA loans for people staying in the United States under DACA.
So does this mean DACA recipients are unable to get a home loan? Not at all!
No FHA Loans for Dreamers: What are the Options?
Conventional Loans: The Home-Loan Option for Dreamers
While FHA loans may not be an option if you are a Dreamer, there are financing solutions for your purchase. Specifically, conventional loans supported by Fannie Mae and Freddie Mac are a real option for Dreamers.
With these loans, you will get excellent terms so you can actually afford to purchase a top-quality house. All the same guidelines, regulations, and restrictions apply, so you are essentially getting the same loan product that a U.S. citizen would get if they use a conventional loan.
Conventional loans allow you to purchase a top-quality home, assuming you qualify. The limits for these loans is over $510,000, so you can purchase a wonderful home in a great neighborhood if you are eligible for this amount. In certain high-cost areas, the limit can go even higher. In some locations, the limit is pushed all the way to $765,000 for a single-unit property.
The downpayment requirements for these loans are very reasonable as well. Conforming loans generally require a 3% downpayment. This may seem like a lot (on a $300,000 purchase, for example, 3% represents $9,000), but it’s actually one of the lower downpayment requirements available in the industry. Also, you can use gift funds for the downpayment and other fees, making the loan even more attainable.
To qualify for these loans, you will need a credit score of at least 620. While other loans (such as FHA loans) may be available with lower credit scores, conventional loans generally need a score of 620 or higher. This is generally considered a lower credit score, so while these are not “low-credit” home loans, they are options for DACA recipients who may be struggling with their overall credit profile.
Documentation of these conventional loans for Dreamers is fairly simple. You’ll have to provide proof of your current immigration status, and you’ll need to provide your Employment Authorization Document card.
Also, the lender will need basic income information, same as any other loan. Bank statements, W2s, and federal income-tax documents can all be used to prove that you are able to meet the monthly loan requirements.
Dedicated to Helping Dreamers Find an Excellent Loan
If you are a Dreamer and want to learn more about your home-loan options, contact our staff today. We’ll help you find the right financing for your purchase, and we’ll take a common-sense approach to mortgage underwriting, increasing your chances of approval!
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