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Affordability – Down Payment Assistance
The Federal Reserve met for two days and after its meetings announced that short term interest rates would be unchanged.
So, the issue of home affordability is back on the table.
In a government study on reasons for renting rather than buying, about 68% of the respondents said they cannot afford down payment.
But various down payment assistance programs are available to home buyers:
The downpayment payment can be met using:
1. DPA from the lender – Forgivable, Unforgivable
2. Gift – family, Not-for-profit, Church
3. Tax credit –
For example:
1. FHA loans have a minimum required investment (MRI). When a borrower gets a DPA from the lender, the funds from the DPA can be used to MRI.
2. If the DPA is a second lien, the buyer can use those funds to meet MRI.
3. Funds for MRI cannot come from the seller, because the seller benefits from the sale transaction. The seller credit, if there is one can be used to cover other closing costs.
Conventional loans, usually has a minimum down payment of 3%, but most borrowers use a higher amount.
FHA loans have a down payment of 3.5%. For a $400,000 home, the 3.5% down payment is $14,000. For a $250,000 home, the 3.5% is $8750.
This means that a borrower using an FHA loan takes a loan amount equivalent to 96.5%
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