Today we’re talking about one of my favorite down payment assistance programs that’s available nationwide. This program offers a 2% or 3.5% forgivable down payment and/or closing cost assistance with NO income limitations! That’s right – no matter how much money you make, you may still qualify for this amazing opportunity.
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It can cover your down payment or closing costs, making it easier for you to afford upfront costs and become a homeowner. Now, down payment assistance programs are not unusual, but what sets this program apart is that it’s fully forgiven after just six months! Plus, this program is eligible in all states, except Washington.
Keep reading to learn more about:
- What is Down Payment Assistance
- The Empowered 3.5% Program
- Qualifications Needed
- Program Limitations
- How To Take Action
What is down payment assistance?
First of all: what is down payment assistance (DPA)? Essentially, DPA is a category of programs that are available to home buyers, and there’s thousands of them out there. A DPA program is one that helps you in your journey to becoming a homeowner by offering financial assistance for things like closing costs or your down payment. A down payment, at the lower end, normally falls around 3.5% while closing costs tend to sit anywhere between 1-3%. Finding a program that can help you with these extra costs would mean that you wouldn’t have to come up with as much money upfront, which is one of the top barriers to entry in home ownership. A DPA program can cover part of your down payment, or even all of it. You could choose to use it to cover all of your closing costs. In some cases, you don’t have to use all of it. There are lots of different programs and lots of different styles of down payment assistance.
The Empowered 3.5% Program
Now, with each DPA program comes a set of eligibility requirements. While the exact criteria will naturally vary a little from program to program, there is ually an income limit to eligibility. There may also be a credit score minimum. Sometimes it’s location-based or residency-based.
Right now, we’re going to focus on the Empowered 3.5% DPA program. Empowered as a 2% program as well, so we’ll talk a little bit about both of them. We’ve partnered with EPM Wholesale here with Patriot Pacific Financial to offer a forgivable government grant for either 2 or 3.5% percent that can be put towards your down payment and/or closing costs. So if you haven’t quite gotten enough money to cover all of that, this could make up that difference.
This program uses the standard FHA loan requirements to determine eligibility. In other words: if you can get approved for an FHA loan, you should be able to get approved for this. The program offers a 2% or 3.5% amount in terms of assistance, and is forgiven after about six months. The program is eligible for home buyers in all states except Washington; Washington has some state-specific restrictions on down payment assistance programs, so this particular program is not an option for home buyers in Washington.
A key feature of this program is that it allows a non-occupant co-borrower, which means that if your income isn’t enough for the home you’re looking for and your desired co-signer isn’t going to reside in your new home, they are still eligible to co-sign with this program. Only one person on the loan has to meet the down payment assistance qualifications.
Let’s discuss qualifications. In order to be eligible for this program, only the main borrower has to qualify, and they only need to meet one of the following criteria:
- Be a first time home buyer
- Have current or be retired from employment; or be a volunteer non-paid member
- Meet the income restrictions OR be in an underserved census tract
- Have a FICO credit score of at least 620
And you have to take a home buyer counseling class. That’s it.
Now for the details.
- First time home buyer
As long as you haven’t owned a home in the last three years, you are considered a first time home buyer and you’ll be eligible for this program.
Do you currently have a job? Are you retired? Are you a volunteer or a nonpaid member? Have you ever been in the military, served as a first responder, or worked as an educator, medical professional or civil servant? What’s great about this program is that it’s very open to the different kinds of roles within each of these professional environments. If you worked in a daycare center, that counts as an educator. If you were a CNA, that counts as a medical profession. All of this makes it a lot easier for you to qualify for this program.
This one is pretty standard. The metric used to determine income eligibility is your income in relation to 140% of the state or county median income. Take, for example, Southern California: in Riverside County, the limit falls around $122,000 maximum household gross income. Orange County is around $137,000. This particular qualification can be a limiting factor for many people to be eligible for DPA programs; most people will qualify under the first or second qualification listed above.
- Underserved census tract
This is typically someone who is a resident in a low income area or a designated disaster area. And if either of these is the case, you’ve pretty much already qualified for this program and they’ll be eager to help you out. This qualification is not as common as the other ones.
Home sweet home
So you’ve qualified: but what about the house itself? Every program has its limitations when it comes to what kind of house you can buy using a DPA program, but they’re usually not too bad and often look like the standard FHA limits.
To start off, the house you purchase must be a single family home. It can only be one or two units (cannot be three or four). This being said, you can still purcahse a manufactured home; it just either has to be a single wide or a multi wide, and it must have been constructed after June 15th, 1976 on a permanent foundation (433A certified). Additionally, it has to be on land you own; it can’t be in a park or on leased land. You do have to do a 3.5% minimum down payment, which is standard for an FHA loan, but you’re allowed to get up to 6% in seller concessions. What we often see with this program is that people will use the 3.5% down, and as part of the purchase agreement they get 2-3% concessions from their seller, which covers their closing costs.
Next, it has to be a 30-year term (which is pretty standard for an FHA). Your debt-to-income ratio can go up to 48.99%, which is pretty good. There are no resale restrictions, allowing you to sell the home after six months without penalty. And once again, this is not eligible in Washington state. You can’t combine it with any other DPA program and you can’t use it for anything that’s non-FHA.
The last thing to note: just like anything else, nothing is free. Utilizing this kind of program does cost a little bit more in terms of your interest rate. Typically, your interest rate will be about 7.5-7.75%. As of mid-August 2023, we’re seeing standard FHA loans in the mid to high 6% range. That means your interest rate in this program is a little bit more than a percentage point higher than you might get without the program. With a typical house in the $300,000-$400,000 range, that could be a few hundred dollar’s difference per month. But what’s worth considering is that that difference might also be what gets you into a home without having to pay your down payment out-of-pocket.
To sum it all up
We hope this provides you with a general idea of this program. It’s definitely on our favorite DPA options. Not only is it forgiven after six months, but the credit requirements are pretty minimal as well. And isn’t it always a relief when you don’t have to worry about your income being a restricting factor?
But we close these FAST; three or four weeks is what it typically takes to close them, just like a regular FHA loan. So if you were worried about a government program getting dragged down by all kinds of extra authorizations – don’t. They do an amazing job at getting this done.
As always, if you have further questions, feel free to contact us through the website.