Are you a first-time buyer ready to purchase a home but you just don’t have all that cash for the 20% down payment that you thought you needed? Well, I’ve got some good news for you. You don’t need 20% of the purchase price to get into your next home. In fact, even if you’ve purchased a home before you still may be eligible for first-time buyer assistance.
So how can you get first-time buyer assistance if you’ve purchased a house before? For many of the programs available to first-time buyers the definition of a first-time buyer is simply someone who hasn’t purchased a home within the last three years. So, you may be eligible. There’s a long list of programs available to buyers and first-time buyers nationwide. The most familiar one to Michiganders would be the MSHDA down payment assistance loan which is the main topic of this blog. MSHDA money can be used alongside all of the common mortgage loans that are used by home buyers. Let’s take a quick look at those loan options.
First you have the most common one, a conventional loan. A conventional loan can be obtained by first-time home buyers with down payments as low as three percent. Of course, there are other requirements that you’ll have to meet in order to qualify for that type of loan. Such as a minimum credit score or FICO score of 620. You also need a debt to income ratio of no more than 50 percent. Debt to income ratio is just what it sounds like. It’s your amount of monthly debt compared to your monthly income.
There are also FHA loans which are federally insured loans. They’re very similar to a conventional loan except that the federal government insures the loan. Meaning, if the borrower was to fail to pay on the loan, the insurance provided by the federal government would guarantee that the lender would get paid back. Now, because the lender is assured that they’re going to receive payment for their loan one way or another, it allows them to relax some of the requirements. So, some FHA loans can be obtained with a credit score or FICO score as low as 500. However, if you have a FICO score of at least 580 that’ll qualify you for a three and a half percent down payment loan. The homes also have to pass an inspection to meet minimum safety and condition standards.
Then there are VA loans which are available to eligible military veterans and active military personnel. There is no set minimum FICO score by the federal agency that that guarantees these loans, however, there is often a minimum score requirement established by the lender providing the VA loan. The most attractive feature of a VA loan is that there is a zero down payment. That’s right, zero down payment. You don’t have to put any money down. There is no required inspection required by the federal agency that insures the VA loans, however, most VA lenders will highly encourage or maybe even require an inspection.
There are also USDA loans which are programs similar to the FHA and VA programs in that they target specific buyers. USDA loans were created specifically for homes in rural areas.
So those are the four most commonly used mortgage loans to buy homes. MSHDA down payment assistance money can be applied to all of those. MSHDA stands for the Michigan State Housing Development Authority. That is the Michigan governmental agency that runs the program. DPA stands for down payment assistance so if you see “DPA” that’s what I’m referring to.
The MSHDA program is actually a loan. It’s a second mortgage on the property so it’ll be a mortgage in addition to your primary mortgage loan. It’s a zero percent loan however and it has no payments. That’s right, no payments. You don’t pay it off until one of three things happen. Either you sell the house, or the mortgage is refinanced or the mortgage is paid off. When one of those three things happens then the MSHDA loan gets paid off at that time. Participants in the MSHDA DPA program are required to come up with one percent of the purchase price of the home to go towards the down payment and closing costs. The remainder of the down payment and closing costs can be covered by the MSHDA loan, up to a maximum amount though. The maximum amount statewide for MSHDA loan is $7500 or four percent of the sale price of the home, whichever is lower. In some select zip codes in Michigan the maximum amount goes up to $10,000. Additional eligibility requirements for the MSHDA DPA assistance program are:
- It’s only available to first-time home buyers and some repeat home buyers in targeted
economically disadvantaged areas.
- It’s for people with credit scores as low as 640. There’s an alternate credit review method that is available for those that don’t have a credit score.
- The minimum down payment for the home purchase is three percent.
- The home has to be your primary residence so it can’t be used for vacation homes or investment properties.
- In 2022 the maximum price on the home purchase is $224 500.
- There are income limits that vary by your location in the state and the number of adults living in the house.
- Your overall debt to income ratio for all of the adults in the house has to be 45% .
- Borrowers have to attend a home buyer education course and receive a certificate of completion of that course to be eligible for the program. You can you can attend that course online.
There’s your overview of the most common loan programs available to first-time buyers and the MSHDA DPA program. If you need more information on any of these options you can contact your loan officer. If you don’t have a loan officer I can recommend a good one in the area. Use the “Ask Here” button near the bottom of this page to contact me.
There are many other first-time buyer down payment assistance programs available nationwide and in the state of Michigan (other than MSHDA). If you would like to find out more about these other DPA options, click the link below to find out which you may be eligible for.