Can I Qualify for a mortgage with limited savings?
Down payment assistance programs
Another potential source of funds to augment your limited savings are down payment assistance or DPA programs. The term is a bit of a misnomer because actually the funds can be used for any of your required funds to close.
Assistance programs come in two flavors: those that are grants and those that may require repayment. Let's consider some programs that are offered state-wide.
➢ Homes for Texas Heroes Program
➢ Home Sweet Texas Loan Program
➢ My First Texas Home Program
➢ My Choice Texas Home Program
The first targets public service workers, such as police, teachers, and veterans. My First Texas program targets first-time homebuyers, those who haven't owned a home in the last 3 years.
All programs have income limits, and some have home price limits. The income limits range from about $106,000 to about $140,000 depending on the program and the county where the home is located. The home price limits also vary by county. Note that in certain areas considered "chronically economically distressed," both limits are higher, and all of the major metros have such areas. You can look up the limits in your area using these links. (You may find the tables a little confusing. Please give us a call if you need help determining the limits for your area.)
You can find more information about qualifying for down payment assistance by clicking here. The rest of this discussion will help you analyze whether using down payment assistance makes sense for your situation.
The programs work by offering the assistance in exchange for a slightly higher mortgage interest rate. Let's study the example of a DPA program to cover a 3% down payment to purchase a $250k home. At the time we performed this analysis, the rate using the DPA program was 4.875%. The market rate for a 3% down conventional loan was 4%.
The assistance in this case would be $7275. (The assistance is 3% of the loan amount, not the purchase price.) The monthly principal and interest payment for the DPA program would be $1283, whereas the payment using the market interest rate would be $1158. So, in exchange for $7275, your monthly payment would be $125 higher.
To determine whether this makes sense for you, consider the following:
➢ Can you qualify with the higher payment? - We can make this determination for you.
➢ Does the higher payment fit your household budget? - Only you can make this determination.
➢ Does the exchange make financial sense? - You are paying $125 more each month in exchange for $7275 of assistance. If you stay in the home more than 5 years, the higher payment makes the assistance look rather expensive. However, if it's the only way you can afford a home, it still may be worth it. (Note, however, that you may be able to refinance the loan to a lower interest rate during that 5 years.)