John Luca:
Chris, what programs are out there to help First Time Home Buyers?
Chris Cox:
John, the most prominent is the Single Family Mortgage Revenue Bond Program, nicknamed as the state bond loan. This is the subsidized loan offered by the state for individuals and families who have not owned any real estate in the previous three years. There are 2 different variations on this program. The first is a 97% loan to value loan or lower that does not require a grant or assistance and is paid back over 30 years. The second is the most popular, which is a 30 year fixed loan at 97% and allows the state to give a grant towards the down payment or the closing
costs. The grant is calculated by taking 3% of the loan amount. Either the 30 year with the grant or the 30 year without the grant can be underwritten through FHA guidelines or through Fannie Mae guidelines. If underwritten through Fannie Mae guidelines, the credit score must exceed 680 to receive the subsidized private mortgage insurance.
If underwritten through FHA guidelines, the credit score can be below the new standard of 580 for a credit score. A home inspection is highly recommended but not required. “First time home-buying counseling” is now required. A 1 to 2 person family purchasing in New Castle County may not have combined income greater than $74,300 from all sources. Families of three or more cannot exceed $85,445. (Kent and Sussex Counties have a maximum income of $67,500 for a 1-2 person family or $104,020 for a 3-4 person family.) Persons purchasing a “targeted” home have higher income limits.
The maximum purchase price for New Castle County is $456,054, for Kent County is $444,189, and for Sussex County is $384,868. Persons purchasing a “targeted” home have higher purchasing limits. (In New Castle County, the “targeted” homes are located in sections within the city limits of Wilmington and are generally near the center of that city or just to the east of the downtown area.)
Another program that can be utilized is the DHP. This is a silent second loan. The interest rate is 6% but does not have to be repaid until the first mortgage has been paid in full. The loan will still accrue interest until the loan is satisfied. The loan can only be used for the minimum down payment and for the closing costs. First-time Homebuyers counseling is required and a complete home inspection by a ASHI regulated home inspection company is also required. This program is very much confused as a $10,000 grant. It is not a grant. It is a loan. The best advice to a person who is receiving the DHP is to always pay the interest each even though it isn’t required.
There is the Live Near Where You Work program, which is also subsidized. However, the employee must live close to where she/he works. The employer must be on the state’s list of approved employers. In New Castle County, there is a “front door” program. The legal name is the Federal Home Loan Bank of Pittsburgh program. Only direct lenders may participate. Trident is not a direct lender for this program. Wilmington city and Newark city have a program that is similar. Both programs are income dependent. Typically the funds are used to assist with the down payment. Counseling program is required. (Wilmington city also has a program for current homeowners. This program provides a forgivable loan but can be used only to make a home more energy efficient. This includes a new roof, insulation, windows, exterior doors, etc…) The maximum loan is $25,000.
CRA (community reinvestment act) is offered by Trident but the rate is not as competitive as can be found in the New Castle county financial community. The income limit is $59000 or less. The CRA funds are typically used for a second mortgage to eliminate the need for PMI. The first mortgage at 80% of the sales price is predicated upon the borrower’s credit and ratios and that interest rate can fluctuate accordingly. Most of the time, the CRA program follows the guidelines of a FHA mortgage. Your debt-to-income ratio cannot exceed 41%.
FHA assistance programs. This program isn’t limited to first-time homebuyers. However it works roughly like this: The seller of the property agrees to give a 6% sellers assistance of which half of the sellers assistance is sent to a non-profit agency plus an administrative fee. This is remitted back to the buyer for the buyer’s 3% required funds. The balance of the sellers’ assistance is used towards the buyer’s closing cost. Example: Sales price of $200,000. Borrower must place 3% into the transaction or $6000. The seller agrees to give a 6% assistance. A check is sent to the non-profit agency for $6000 plus a $350 administrative fee. The non-profit sends a check to the settlement table for the $6000 which will allow the buyer’s 3% requirement to be met. This shows up on the HUD-1 as Gift funds. The balance of the sellers’ assistance shows up on the HUD-1 settlement sheets as a sellers concession.
John Luca:
Thanks for that invaluable information Chris. First time homebuyers can contact me at John@TriStateTeam.com or 302-999-6966 and we can work together to find you not only the best home for you, but also the most advantageous financing to go along with it.
