Update on the Down Payment Assistance Loan

Updated on February 12, 2019
MarleneB profile image

Marlene is a California real estate broker/REALTOR®, selling property since 1989. California Bureau of Real Estate License #01056418.

Down payment assistance loans can help with a percentage of your down payment.
Down payment assistance loans can help with a percentage of your down payment. | Source

After disappearing for about a decade, down payment assistance programs are beginning to resurface as loan programs which help borrowers with the minimum down payment required to purchase a home. These programs are designed to help borrowers with some or all of the down payment and/or closing costs associated with buying a home. The programs are generally offered by a local or state housing administrator. They can also be administered through a nonprofit organization or directly through a lender.

Down payment assistance programs are loan programs that help borrowers with the minimum 3.5% minimum down payment required for loans generally recognized as low down payment loans.

Minimum Qualifications for the Down Payment Assistance Program

If you want to qualify for a down payment assistance program you have many options to choose from. Be aware that these programs have strict guidelines that you are required to adhere to in order to be qualified to receive help through the program.

Information about your credit score, credit history, and income is gathered as part of the determination of whether or not you are credit-worthy, in other words, qualified to receive a loan under the program guidelines.

There are not many rules for qualifying for the down payment assistance program, but the rules for qualifying are strict.

1. You need to be able to prove your income with full documentation. You need to have W2’s, paystubs and tax returns. Sadly, for the down payment assistance programs, the lender cannot qualify your income based on stated income and bank statements.

2. Outstanding credit issues would need to be resolved or addressed because any money you owe to creditors will count against your income.

Credit Scores

Credit scores are what lenders use to help determine whether or not you are credit-worthy. According to The Lenders Network, in order to obtain a loan through the Down Payment Assistance Program your credit score is a deciding factor in beginning the qualification process.

For typical loans, the following example is the usual expectation for credit scores.

Credit Score and Down Payment Schedule

With a Credit Score of
The borrower can get a loan with a minimum down payment of
580+
3.5%
500-579
10%
Your credit score helps determine what your minimum down payment is likely to be.

The county in which you live determines the minimum credit score required for the loan.

Right now, I am working with buyers who want to purchase a home in Stanislaus County, California. Stanislaus County requires borrowers to have a minimum credit score of 640 before they can be qualified to participate in the down payment assistance program.

If you are seeking to qualify for a loan through the down payment assistance loan program, you must factor in the minimum credit score required to qualify for the program. If your county's minimum credit score number is unreasonably high, and if you can save enough money for the minimum down payment required to get a loan, you may want to consider going directly to a lender to qualify for your loan. Most home lenders require you to have a minimum credit score of 620. A score of 620 may be lower than your county's minimum credit score requirement. In this case, you have a better chance of getting a loan if you go directly to a lender for the loan.

Understand this very important concept regarding your credit score - the higher your credit score, the less the lender may require for your down payment. A low credit score means you will have to put at least 10% to 20% down, depending on the loan you are seeking.

Credit History

In addition to looking at the credit score, the lender looks at the credit history to determine how likely you will be in paying back a new loan. The manner in which you pay back previous and current creditors is used as a gauge to determine the timeliness and thoroughness in handling credit that has already been given to you.

If you pay your debts on time and pay the amount agreed upon between you and the creditor, then you are looked upon more favorably than a borrower who is always late to pay and/or who does not pay at all.

Income

If you have a good credit score and a good credit history, the lender will then look at how much income you make and how much current debt you have. The lender also looks at how much additional debt you will incur if they were to award you the additional loan.

Your new debt will be computed and matched against your income to determine what is called your debt-to-income ratio. Typically, lenders want your debt-to-income ratio to be less than or equal to 43%.

Debt to income ratio is calculated by taking the monthly debt payment and dividing it by the gross monthly income (income before taxes and deductions are taken out).

For example, if your monthly debt is $2,150 and your monthly income is $5,000, then your debt-to-income ratio would be 43%.

$2,150 / $5,000 = 43%

Let’s look at another example to help you grasp the concept. If your monthly debt is $1,500 and your monthly income is $5,000, then your debt-to-income would be 30%.

$1,500 / $5,000 = $30%

The higher your debt-to-income ratio, the higher the risk the lender takes to issue you a loan.

The Down Payment Assistance Program is Back

Between the years 2003 to 2006, 100% loans were prevalent. But soon afterwards, there was fallout from the enormous number of loans that went into default and as a consequence, lenders ceased offering 100% financing for home loans.

Now, with the recovering economy and more insight on how to qualify borrowers, the loan industry has brought back 100% financing and the down payment assistance program. At the same time, the industry is making it more difficult to qualify for these loans. Nevertheless, if you meet the minimum qualifications stated in the guidelines, you are likely to receive a down payment assistance loan without a lot of hassles.

If your credit score is not yet up to the minimum credit score required for a down payment assistance program and if you are not able to qualify for a loan at this time, the best thing to do is to work with your creditors to get your accounts settled.

You can talk to a financial advisor or a lender to help you determine which debts and how much of the debt is required to be reduced or paid off entirely. If your creditor is willing to consider a lower payment, your financial adviser or lender can give you some useable tips and strategies for negotiating lower payment obligations.

The other thing to do is to continue putting away funds for the down payment and closing costs. In some cases, your real estate agent can negotiate with the seller to help with some or all of the closing costs. But, the more important issue is the down payment. Most lenders want you to have some "skin" in the game. In other words, they want you to have something to lose if the lender gives you a loan. Although 100% financing is beginning to resurface, it seems to be much more difficult to get these types of loans. In order to qualify for 100% financing, credit scores are required to be extremely high and income documentation is stricter than in the past.

Nevertheless, there are many loan programs that are available. You do not have to be stuck with the strict ones. There are loans out there for everyone. The first step is to talk to a lender to see what your credit score is and work with any creditors with whom you have a negative history.

Last, but not least, start saving funds for the down payment and closing costs in case you are not able to qualify for the down payment assistant program.

Down Payment Assistance Resource

The California Association of REALTORS® has a resource to help buyers and REALTORS® find a Down Payment Assistance organization in your area. It is easy to fill out the 3-step pre-screening form. If you need help completing the form, watch this video for step-by-step instructions.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

Questions & Answers

    © 2019 Marlene Bertrand

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      • MarleneB profile imageAUTHOR

        Marlene Bertrand 

        11 days ago from USA

        Hello Leticia, to get a loan for purchasing a home, you would need to speak to a loan originator. In the loan industry they are known by many names with the most common being Loan Originators, Loan Officers, Loan Consultants, Mortgage Originators and Mortgage Consultants. Or, you could speak directly to a Lender. You might start by meeting with the lender where you have your bank account.

      • profile image

        Leticia gonzalez 

        13 days ago

        I hv never bougth A home this would be my frist time and i allways live in Texas. In San Antonio i have had I'm going to do that and I did report it couple years now my score is up and down so what can you do to help me with this I'm just waiting on my disability SSI social security disability retirement SSA it is pending even if it's a fixer upper reasonable price 80,000 more than that

      • MarleneB profile imageAUTHOR

        Marlene Bertrand 

        2 weeks ago from USA

        Hi Rajan! The down payment loan assistance program is coming back into focus here in the U.S. Perhaps, in India, they may begin to offer it there too.It would be a big help to people who need a little help getting into a home.

      • rajan jolly profile image

        Rajan Singh Jolly 

        2 weeks ago from From Mumbai, presently in Jalandhar,INDIA.

        Very interesting article. I am not sure we have the downpayment loan assistance program here in India though banks do offer up to 90% house loans depending on the borrower's credit score and repayment capabilities. Thank you for sharing.

      • MarleneB profile imageAUTHOR

        Marlene Bertrand 

        2 months ago from USA

        Thank you Mark. The guidelines change so much it is difficult to keep up.

      • Mark Tulin profile image

        Mark Tulin 

        2 months ago from Santa Barbara, California

        Interesting Marlene. It’s always good to have more insight around applying for loans.

      • MarleneB profile imageAUTHOR

        Marlene Bertrand 

        3 months ago from USA

        Hello DDE. Thank you so much. I am glad for your feedback and glad that you found the information useful for anyone. It is always good to know such things in case you know someone who you could share it with, or at least point them in the right direction.

      • MarleneB profile imageAUTHOR

        Marlene Bertrand 

        3 months ago from USA

        Chitrangada Sharan, I am always curious to know what it is like in other countries. Thank you for sharing about how it is in India. The fact that it is similar makes me feel like the guidelines are fairly universal and not outrageous or exclusive.

      • MarleneB profile imageAUTHOR

        Marlene Bertrand 

        3 months ago from USA

        Hello Dora. Thank you very much. With lenders now offering these type of loans, people are starting to ask me how they can participate. I was hoping to answer this question in a way that helps them understand clearly what is involved... and also to give them hope.

      • profile image

        DDE 

        3 months ago

        Information always useful and for anyone.

      • ChitrangadaSharan profile image

        Chitrangada Sharan 

        3 months ago from New Delhi, India

        This is quite helpful information shared by you! I am sure many will benefit from your article.

        I find the rules, especially regarding the credit history, similar to what we have in India.

        Thanks for sharing this well written article with valuable information.

      • MsDora profile image

        Dora Weithers 

        3 months ago from The Caribbean

        Thanks for sharing this valuable information. You spell out the qualifications clearly, and you make valuable suggestions. Good and helpful presentations.

      • MarleneB profile imageAUTHOR

        Marlene Bertrand 

        3 months ago from USA

        Oh, Eric, let's keep up our faith that everything is going to work out beautifully. I mean, look at who we serve and who we have taking care of us. I'm referring, of course, to the One and Only, the Alpha and Omega, the Holy and Almighty... the King of Kings. And, we just need to say Amen!

      • Ericdierker profile image

        Eric Dierker 

        3 months ago from Spring Valley, CA. U.S.A.

        Marlene the border does not need congress -- but we want a consensus. But we have faith a deal will be made and the border secured through presidential right. A sticky wicket but it is what it is.

        As you know we have between 90 and 180 days for foreclosures to start. I have faith.

      • MarleneB profile imageAUTHOR

        Marlene Bertrand 

        3 months ago from USA

        Eric, it is interesting that you mention the shutdown. I have been finding a lot of government websites with notices about no one monitoring the shop. It's actually getting scary. The other day I went to the cyber crime website to report an online extortion crime and the website wasn't functioning due to the shutdown. Scary!

      • MarleneB profile imageAUTHOR

        Marlene Bertrand 

        3 months ago from USA

        Hi Bill, thank you for your kind words. I came out of retirement and was happy to see this type of program available for buyers. I hope you are doing well too.

      • MarleneB profile imageAUTHOR

        Marlene Bertrand 

        3 months ago from USA

        Hello John, I am always curious about how other countries do things. Here in America, a person can still be considered a first time home buyer if they have not purchased a home for at least three years. I think Australia ties the concept more closely to reality.

      • Ericdierker profile image

        Eric Dierker 

        3 months ago from Spring Valley, CA. U.S.A.

        Marlene you reminded me of something here. There was this feller named Lincoln, tall as an oak tree and just as unwilling to bend with the wind. Above a courthouse where he plied his legal acumen. Springfield. Is the inscription to the effect of; "Obedience of the law is the greatest freedom".

        Took me 40 years to figure this also applies to credit scores, financing and our finances. Not to mention life in general.

        I just love experts in these areas, a full on metaphor for our spirituality. You rock young lady!

        With the shutdown we may need to reconfigure our latitude in funding. Thanks for the tips.

      • billybuc profile image

        Bill Holland 

        3 months ago from Olympia, WA

        Good information, my friend. I'm much too old to be worried about such things, but great info for young couples to consider.

        Hope you are well!

        bill

      • Jodah profile image

        John Hansen 

        3 months ago from Queensland Australia

        Marlene, this was interesting. In Australia, we don't have the same "down payment assistance loans" but we do have "First Home Buyers Assistance" where the Government will provide a certain amount (changes from time to time) towards the deposit (down payment) if the borrower can prove they have never owned a house before in their name. Generally, a 10% deposit is required for a home loan. Thanks for sharing.

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