down payment assistance

People in the Houston, Texas area looking to purchase a home today will likely find that the financing environment is far different than it was a few years ago at the apex of the housing boom. Through the use of sub-prime and Alt-A loan programs, combo loans and seller-funded grant programs, it was somewhat easy to secure a home loan with little to no down payment. Many homeowners who purchased in those days are finding out how times have changed as they try to refinance a home with little, no, or even negative equity. In today’s economic environment, lenders are looking for more “skin in the game”, but there are still are some programs available that will allow a buyer to obtain a mortgage with little, or even no money down. The following is a brief description of some of those programs:

FHA Loans – FHA loans have speedily become the most popular mortgage vehicle for first-time and move-up home buyers. These loans will allow a borrower to obtain a loan with a minimum 3.5% down payment. This down payment can come from the borrower’s own funds, through a gift from a relative or employer, or through a down payment assistance program. In addition, seller contributions up to 6% of the sales price are still allowed. The Federal Housing Administration has expressed a desire to reduce seller contributions to 3%, but this guideline has not yet been implemented.

VA Loans – Mortgage loans guaranteed by the Veterans Administration are among the most attractive loans on the market today. These loans allow qualified active and retired military the ability to purchase a house with no down payment and more flexible qualifying criteria. In addition, the closing costs associated with VA loans are very reasonable as lender fees are limited and there is no monthly mortgage insurance. An up-front funding fee ranging from 1.25% – 3.3% applies to these loans, and seller contributions up to 4% of the sales price are permitted.

Down Payment Assistance – Down Payment Assistance programs offered by states, including Texas, and local governments such as the City of Houston, and Harris and Montgomery Counties offer down payment assistance to creditworthy first-time homebuyers in low to moderate income households. The amount of assistance can range from $5,000 to $30,000 dependent upon the area and the income level of the borrowers. Minimum credit scores of 640 typically apply and borrowers should have a minimum of $1,000 in order to cover the costs of up-front appraisal, property inspection, and earnest money deposit.

Gift Funds – Gift funds are among the most overlooked tools available to borrowers. In many cases, a parent or grandparent has the capacity, and willingness, to help a borrower with their first home.  This resource can often be tapped to make up the difference between what a borrower has saved, and what is required for a minimum down payment. As long as the gift does not need to be repaid, it can be used to meet the down payment requirements on government loans. Conventional loans generally have more stringent criteria that require a minimum down payment to come from a borrower’s own funds with gift funds comprising any excess over that requirement. Acceptable donors for gift funds include immediate family, a government or charitable organization, an employer or labor union, or a close friend who has a documented interest in the applicant.

Rural Housing Loans – The USDA’s Rural Housing Service offers 100% financing in certain designated rural areas. These areas include cities or town with populations equal to or less than 20,000 people and outside of major metro areas. In Harris County, there are several small communities eligible for this program. Surrounding counties have larger swaths of eligible areas.  You can check here for the USDA’s qualified areas. There is no limit on seller contributions with this program and the 3.5% guarantee fee may be rolled into the loan in excess of the appraised value.

HomePath Loans – These loans are offered on foreclosed properties owned by government mortgage giant Fannie Mae. Qualifying properties are typically recent construction where Fannie Mae has funded any necessary repairs. Under this program, Fannie Mae and participating lenders waive the appraisal requirement and allow owner occupants to buy with just 3% down. This down payment can come from a borrower’s own funds, gift funds, or from a grant. Most importantly, there is no mortgage insurance requirement on these loans which can mean thousands of dollars of savings to a homeowner over the life of a loan. Credit score requirements are normally higher on these loans, so expect to provide a minimum 660 credit score to qualify under this program.

Bond Money/First Time Homebuyer Programs/Mortgage Revenue Bonds – There are several first-time homebuyer programs that are available to borrowers meeting certain low income targets.   They also cover people who fall into certain employment categories such as professional educators, law enforcement, firefighters and emergency medical technicians. These programs, often referred to as “bond money”, offer a low fixed interest rate in addition to grants of up to 5% of the purchase price towards down payment and closing costs. All of these programs have income limitations that are based on family size and property location. Borrowers must typically complete a homebuyer education course and not have had an ownership interest in a home for the past three years. Minimum credit scores for these programs in Texas are currently 620.

My Community & Home Possible Programs – These programs are conventional programs offered by Fannie Mae and Freddie Mac lenders and allow low to moderate income first-time homebuyers to purchase a home with as little as 3% down. Mortgage insurance premiums are reduced under this program and specific employee groups are permitted to use grants to cover required reserves and more liberal debt ratios.

With so many programs available on the market, it is imperative that a qualified Houston mortgage lending professional is consulted to determine which home loan program is best suited for your individual needs as a borrower.