We are making the zero-downpayment-news new again because now we have a mission to increase the likelihood that offers will be accepted. Lack of information (and maybe a couple of bad experiences) disqualifies many first time home buyers.
What really matters for a loan to close and close on time is: (1) well-documented income, (2) has an Automatic Underwriting System AUS approval. Note that FICO is a non-issue if it is approved (we approve FHA loans starting with FICO 580), note that proof of funds is a non-issue if it is a qualified buyer under a First Time Home Buyer downpayment assistance program and they have the minimum funds to close or gift.
Nevertheless, most listing agents require extra documentation with the offer that includes: FICO scores (the highest the better … I say not really) and proof of funds (the highest the better …I say not really). As mentioned above, this information is only valid in the context of an approval and if pre-approved by us, every loan will fund and fund on-time.
Many are disqualified because they have $4000 in the bank only, or the LTV is 103%. This is a non-factor if the buyer is using a downpayment assistance from a reputable and experienced lender.
The likelihood that someone will be on time on their mortgage payments when they buy with the down-payment assistance is actually higher. The ratios are tighter than on a regular FHA, meaning they have more margin on their budget for emergencies and home repairs.
When we approve a buyer with a down payment assistance it covers all the downpayment and most of the closing costs. We run the AUS, and because we do not have overlays, what is in the report is what our underwriters will use for their final approval.
There are many down-payment assistances. We can help with the zero down in many states, but I will base my analysis on the California Housing Finance Agency CALHFA and more specifically Southern California with a focus on Los Angeles, San Bernardino, Riverside and Orange Counties.
CALHFA will review 4 pieces of information only: (1) First time Home Buyer: did not own a primary residence in the last 3 years, (2) residency, (3) income limit, (4) property value and if in a targeted census track. They do not judge if the client has the capacity to pay the loan, we loan officers and underwriters do, and ultimately the AUS does. There are some lenders with overlays, which means internal guidelines over HUD guideline. Nevertheless, if you are using a Direct Lender with no overlays you can be sure your loan will close if the loan officer did a good job.
The fact is that having an offer accepted with a Down Payment Assistance requires a little more paperwork and processing time, and for this reason, it will always be a little more difficult to be accepted if there are multiple offers. You need a strong team behind you: a real estate agent that can strengthen your offer with a record of good experiences, and a loan officer that will step up and defend your qualification with a thorough pre-approval package, and be reaching out to the listing agents to make sure they understand our approval process.
Your part as a home buyer is to be sure about the area and the property, and the impact of the payment on your budget. Be ready for many offers, and be ready when the opportunity comes. Have all your paperwork organized and updated and sign the documents asap.
Your team should educate and support you all the time. If you fell uneasy, you probably have questions and should get answers. Persistence always pays off, and wealth is just a couple of years down the road.