Is a dpa a good way to get into first home?

Question

would using a down payment assistance program to get into our 1st home a wise decision ?

My wife and I are looking for our 1st home nothing too expensive we don't want to be house poor we've read the book on 1st times home buyers from the bigger pockets forums and we have learned a lot

Although we do have money saved we have a baby on the way and we are considering using a down payment assistance program so we don't use up all of our savings

Is this a good idea for the current market ?

have you guys done it before ?

any lenders here or realtors that have used any

Does it harm or hinder your portfolio or ability to aquire more properties in the long run?

We do plan to live outside of the city not too far since I have to drive to work in the mornings so we have seen the USDA loan 0 down option but no equity when purchasing is something something rather not do..

Any tips would be appreciated thank you guys !

Sasha Mohammed · Answer

first of all let me say, there is NO one size fits all when it comes to loan programs. what makes sense for you may not make sense for someone else, so take my opinions here as exactly that - my opinion.

i am personally not a fan of DPA. reasons being the rates are always higher than traditional counterparts, and they're not usually even gifting you any money. Typically DPA takes the form of a 1st and 2nd combo, sometimes a 1st, 2nd, and 3rd combo where the down payment and closing costs are basically financed. in some cases, that chunk of money is either silently accruing interest without a payment, and under certain circumstances, forgiven if you play your cards right. but it does pose a challenge for refinancing as you are not walking in with equity -- you're starting out a little over-leveraged.

Generally speaking, you're paying for this feature in the form of higher-than-market interest rates, and interest-accruing balances that are not often paid down.

with FHA allowing for 3.5% down, conventional allowing for 5% down (and 3% down in some cases as well), the barrier to entry is not massive. if my mother were asking these questions, this is what i would advise her. small down payment, but a significantly better loan IMO.

hope this was helpful!

Bruce Lynn · Answer

DPA has been very tough to use the past few years....just way too much competition that isn't using it in the sub $300K range.

With that said the market has shifted some the past 2-3-4 months and maybe a seller would accept it if they don't have other offers.

I would just be prepared to make several offers and not get your heart set on one particular house.  You may have to make several offers before you get one accepted.

I think that will be the same with any of the low/no down payment programs.   If you can live outside the city USDA loan may be an option.   If you can live in certain zip codes, the Bank of America zero down program may be an option.  Just be prepared to be frustrated and have challenges as they are often slow and unresponsive.   You won't win ever deal with those, but maybe you get lucky....hit the right house at the right time.

Also with the DPA programs normally I say you need to be prepared to stay in the home 5 years or more as often they have a time limit for the money to be used....sometimes they are a 2nd loan that goes away at 20% a year, so you need to stay 5 years to take full advantage of it, or you will have to repay it.  They also tend to require you live in the home to use it, so normally you can't use it this year, and then turn that property into an investment property and try to buy something different next year.

Also it depends on how much money you make.  The DPA programs are normally pretty restrictive on what they will offer based off your income. Sometimes what they require just doesn't make sense.   Seems like often if you make enough money to afford the payment, then you don't qualify.  If your income is low enough to qualify, you can't afford the house.

Also they tend to want you to buy homes in good condition, so no fixers.

Best thing to do is get with a great lender that knows the programs, see what works for your income level and where you want to live.   Get all the details and purchase amount and then go shopping.

As far as limiting your ability to buy an investment property, typically I say you need to plan on 25% down for the next property, although there are investor loans perhaps at 10% down if you have great credit and reserves, but you will likely pay higher interest for those.

I like also and agree with what @Sasha Mohammed posted above.

Adam Bartling · Answer

@Juan Campos If you are rural, yes USDA is the cheapest option.  I am also in Texas.  There are some limitations to using the USDA 0% DP loan, such as you can not exceed 125% of the county avg. income.  Only option better if you qualify is the VA loan.

Check this out, we even do a One Time Close Loan on new construction with USDA.  Must have 6+ months of reserves after closing costs.

Using DPA is not going to harm you in any way.  Most DPA you will still have to put in $1,000.

You have to look at your options.

If you qualify for USDA, DO IT!

If you are going to be in the City FHA with DPA will keep you from touching your reserves.  I can assume with your wife not working for 9-12months at least this could be a concern.

Also if buying existing property, instead of lowering the price ask for Seller Contributions to Pay for Closing Costs.

Got any more questions?

Is a dpa a good way to get into first home?

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