Grants can help you make your down payment
By JEFF LAZERSON / CONTRIBUTING COLUMNIST
If you are currently house hunting, it might be an especially Happy Chanukah or much Merrier Christmas if you receive the Sapphire down payment assistance or DPA grant offered by National Homebuyers Fund.
If you are a renter looking to own, this could be your affordability holiday treat!
Go Federal Housing Administration (FHA) with a minimum 3.5 percent down payment or Veteran’s Administration (VA) zero down financing.
Here’s how it works: You receive a grant equal to 3 percent of the loan amount, up to a maxium loan of $417,000. The loan amount includes the FHA financed mortgage insurance or VA funding fee for owner-occupied California single-family homes, townhomes or condos.
You do not have to be a first-time buyer. In fact, you can own other property right now. You can go down to a 640 middle credit score. The maximum Orange County income for the borrowers who will live in the home is $98,785.
Non-occupant co-signors income can be used to qualify FHA borrowers without their income being counted against the income cap. Such a deal!
For example: Take a condo with a $420,000 sales price using FHA financing. Your DPA is $12,372.
You can get in with as little as $2,328 (for the remainder of the down payment that the grant does not cover). This assumes the seller would pay the settlement charges and escrow impounds.
Assuming a 4.5 percent, 30-year fixed rate and a $350 homeowner’s association fee, your total monthly payment would be $3,169.
And, unlike some other grant or financing assistance programs, there is no recapture of the down payment grant if you sell the property or refinance shortly after purchasing.
So what’s the catch?
It’s really more of a trade-off than a catch. On the example above, you are handed $12,372 of cold cash on the DPA, but your payment is $209 per month more, since you’re interest is 4.5 percent and a standard FHA loan rate is 3.625 percent at zero points.
There is one good work around when you accept the 4.5 percent DPA rate. FHA allows you to do a streamlined refinance after you make six on-time payments. It’s virtually no-qualifying. Based upon current rates, you can do a true no-cost streamline at about 3.75 percent. It’s a reasonable bet that rates will be similar after you make those first six payments.
For zero down VA loans, you can use the DPA money to reduce the amount you need to borrower and for certain settlement charges and escrow impounds. There is no time-out period on VA streamline refinancing.
While you are spinning that dreidel or stuffing that stocking, think about the gift of homeownership that is knocking at your door.
Jeff Lazerson - Mortgage Columnist since 2011