Down Payment Assistance has been available throughout the nation for FHA, Conventional, USDA, and VA buyers for a long time. I still run into Realtors and clients that think Down Payment Assistance (DPA) programs on mortgages are only for first time homebuyers. This is not true. Down Payment Assistance is available for non-first time homebuyers too. CHFA provides down payment assistance grants and silent seconds for FHA, Conventional, and VA buyers whether or not they are first time homebuyers.
CHFA = Colorado Housing and Finance Authority
Many states have state sponsored organizations that manage down payment assistance programs for their states. Colorado Housing and Finance Authority (CHFA), for example, manages 9 different mortgage loan programs, one of them is a true first time homebuyer program while the rest are to help all home buyers that fit within the qualification and income limits of the various programs. CHFA’s First Step Plus program provides a silent second for a first time homebuyer at a lower interest rate than the non-first time homebuyer FHA program CHFA Smart Step Plus. As of 8.7.18, CHFA First Step Plus rate was 5.125% while the Smart Step Plus rate is at 5.25%. CHFA’s Smart Step Grant interest rate is at 5.875% as of the same date. The conventional silent second down payment assistance program is also for first time homebuyers and non-first time homebuyers alike and it’s rate is at 5.125% as of 8.7.18.
CHFA provides grants and silent seconds for conventional, FHA, USDA, and VA buyers creating zero and low down payment and closing cost options for buyers.
What is the difference between grants and silent seconds?
A grant never has to be paid back, a silent second is a second lien at 0% interest that the borrower does not make any payments on and so sits “silently” as a lien against the property unless the home is refinanced, sold, or the first mortgage is paid in full… then the second lien must be paid in full. Grants have higher interest rates and silent seconds. Silent seconds provide up to 5% of the loan amount to the transaction while the grant is limited to up to 4% of the loan amount… so a buyer will get more money for down payment and closing costs from a silent second at a lower interest rate… but they will have to pay it back at some point…albeit interest free.
Why would a VA buyer use a grant or silent second?
A conforming VA mortgage requires zero down payment. But the veteran buyer still has closing costs and prepaid costs at closing. Additionally, an active duty military person with no service related disability will pay a VA Funding Fee of 2.15% of the purchase price the first time they use their VA loan and 3.3% in subsequent use. Veterans tend to move every 2-4 years. So a veteran may be willing to pay a slightly higher interest rate to use down payment assistance grant to cover closing costs and to pay the VA funding fee and to perhaps even reduce principle of their first mortgage in order to be in a better equity position to seel the home if they were to get orders to PCS in a relatively short amount of time.
How can a conventional buyer purhcase with zero down?
Many of my conventional buyers think that they must have a 5% down payment to purchase a home using conventional financing. In some situations, that is their best option. However, sometimes depending upon their credit scores and amount of mortgage insurance they will pay, a better option may be a 3% down payment conventional loan with a 5% silent second. This allows them to retain their savings to help them move into their home and for reserves, purchase conventionally with decreasing mortgage insurance and decreasing monthly payment over the term of the loan. CHFA also has 3% conventional loan option with no MI (Mortgage Insurance) that can significantly reduce the monthly payment.
Down Payment Assistance does not just mean grants or silent seconds
Many state organizations that offer down payment assistance, also offer No MI and reduced interest rate options for buyers who have lower credit scores and need lower than market interest rates to keep their monthly payments affordable. CHFA Advantage, for example, provides a NO MI conventional loan and requires only $1000 down payment.
With so many options for financing your home… you really need to find a mortgage lender that you trust early in the home buying process. Early means 6-12 months prior to purchasing so that you have time to explore the best financing options available. Call the Abair Team at Caliber Home Loans at 719-694-5317 if you need a lender that you can trust to provide accurate options that fit your situation or email email@example.com with your specific scenario.