Buying your first home is hard. I mean it’s not easy saving up a 3.5% down payment on any home especially when starter homes are in the $250K – $350K range in the Salt Lake valley with few exceptions. That means that many first-time home-buyers will need between $8,750 and $12,250 just for their down payment; when you add closing costs to that, the amount required can go up another $5,000-$10,000 depending on the specifics of your situation / transaction. While some first-time buyers have the advantage of family who have the means to provide a gift for some or all of the down payment and / or closing costs, others aren’t quite so lucky. For those who don’t want to let the market get away from them while saving to buy a home there are down payment assistance programs. Here is an overview of what’s available in Utah – for details on your specific situation, please contact me to see what programs are available for you.
Some Down Payment Assistance Programs and How They Work:
A number of municipalities in Utah have down payment assistance programs with Utah County having the best one. Most of the various municipality DPAs are limited to amounts between $2,500 – $7,500 – while any help is better than no help, the amount of assistance offered will not typically cover the full down payment amount for starter homes in their areas. This means that buyers will have to make up the difference in down payment themselves in addition to having money for closing costs – Realtors are sometimes able to negotiate for the sellers to pay some of the closing costs and lenders (I do it quite frequently) and Realtors often chip in to help out when needed. The Utah County DPA program is more robust in that it will cover a 3.5% down payment for an FHA loan without a problem and it has some added benefits (contact me for all the details). DPAs are usually provided in the form of a 2nd mortgage that doesn’t require payments and has a 0% interest rates, also known as soft 2nds. These loans are either forgivable after a certain period of time (usually 3-5 years of on-time mortgage payments) or they are repaid upon the sale of the home.
Limitations and a Solution
The main challenges with most of the DPAs are the limitations – most are limited to 80% of the HUD Area Median Income (AMI) in addition to having geographical limitations. Most also require the buyer to be a 1st-time buyer – this means that the buyer hasn’t owned a home in the last 3 years. As of December 2019, we are able to offer a much broader reaching DPA that has an income limitation of 115% for soft 2nds but still allows incomes higher than the 115% threshold with a regular 2nd mortgage (current terms are 5% for 30 years). This is just one of the big advantages to this program. Another big advantage is that there is no geographical restriction. Finally, the program does not require the home buyer to be a 1st-time homebuyer. Hence, this program eliminates the challenges associated with the vast majority of DPAs.
Interest rates on the 1st mortgage using a DPA is higher than if you were to just get a stand-alone FHA. This is partly how the DPA is funded. Rates are typically about .25% – .75% higher than a normal FHA mortgage with most being .5% or less above the going FHA rate.
To see what down payment assistance programs are available to you, please contact me at 702-812-1214 / 801-893-1737 or jed.wunderli@noblehomeloans.com.
