JVM offers the Chenoa Down Payment Assistance Program (DPAP).
The “assistance” is a 3.5% (of purchase price) 2nd mortgage that can be coupled with either a 96.5% loan-to-value FHA loan or a 97% loan-to-value conforming loan.
Hence, qualified borrowers can purchase a home with no down payment.
The 3.5% 2nd mortgage is at a rate that is 2% higher than the first mortgage rate and it is repayable over ten years.
Even better though, some of Chenoa’s programs allow the 2nd mortgages to be “forgiven” after 36 months.
In addition, we can close Chenoa purchases in 14 days!
There are no wait-times for special Chenoa underwriting or clearances – like there are with many other DPAPs.
BUT – here’s the problem with Chenoa and all DPAPs: WHO IS GOING TO PAY THE CLOSING COSTS?
All high loan-to-value loans have substantial closings costs b/c they require impound accounts.
In addition, if there are substantial transfer taxes, closing costs can be higher than the required down payment in some cases.
Most DPAPs come with first mortgages that have very high rates.
This is b/c the DPAP providers simply use the yield premium or commission from the high-rate first mortgage to subsidize the 2nd mortgage.
But, b/c the rates on the first mortgage are so high, there is often no more yield premium or commission remaining.
So, lenders are unable to offer “no points” loans (like we normally do) and they instead have to charge points, as that is the only way to make money (lenders are unable to work for free, unfortunately 😊).
In addition, we are also unable to help out with closing costs like we often do (b/c there is no extra yield premium to apply to closing costs).
So, not only are closing costs considerably higher with DPAPs (b/c lenders have to charge “points”), lenders are not able to help pay for them.
So, borrowers are only marginally better off with a DPAP in many cases.
And when you take into account how much higher the rates are, borrowers are sometimes worse off with a DPAP.
Buyers are sometimes better off foregoing the DPAP route and instead just obtaining a standard FHA loan with 3.5% down and a large lender credit for closing costs.
Every buyer requires a specific analysis and sometimes DPAPs are the only way to go.
This is especially the case when buyers have very limited funds AND sellers are willing to offer a credit for closing costs. In this situation, buyers can often get into a home with little to no cash out of pocket – but they need the seller credit.
But, the big takeaway is that many times DPAPs are not the best option.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167
