Unpacking the SMARTBUY Down Payment Assistance (DPA) Program: What You Need to Know

The SmartBuy Down Payment Assistance (DPA) Program is designed to make homeownership more accessible by providing financial support for down payments. This blog will delve into the specifics of the program, focusing on the key qualifications and features that potential homebuyers need to understand.

General Overview

The SmartBuy DPA program offers two main options: a 5-Year Forgivable DPA and a 30/10 Repayable DPA. Both options are tailored to assist with the financial burden of a down payment, but they have different structures and requirements.

5-Year Forgivable DPA

General Description:

• This program provides down payment assistance (DPA) with a subordinated second lien.

• The second lien is fully forgiven after five years if the borrower meets specific criteria.

Assistance Amounts:

• Available assistance amounts are 3.5% and 5.0% of the home purchase price or appraised value, whichever is less.

Eligibility:

• Borrower eligibility is based on FHA or USDA program guidelines.

• There are no requirements for first-time homebuyers and no income restrictions beyond USDA guidelines.

• The minimum representative credit score required is 620, with all borrowers needing at least one credit score.

• Eligible property types include 1-2 unit properties, including condominiums, PUDs, and doublewide manufactured homes. Certain property types such as 3-4 units, unique homes (e.g., log homes, barndominiums, singlewide manufactured homes, and geodesic domes) are ineligible.

Forgiveness Criteria:

• The second lien is forgiven if there is no 90-day or greater delinquency on the first 60 payments of the underlying first lien and the property remains a primary residence throughout the term of the second lien.

30/10 Repayable DPA

General Description:

• This option provides down payment assistance with a repayable second lien.

• The second lien has a 30-year term with a 10-year balloon payment.

Assistance Amounts:

• Available assistance amounts are 3.5% and 5.0% of the home purchase price or appraised value, whichever is less.

Eligibility:

• Borrower eligibility aligns with FHA program guidelines.

• Similar to the forgivable option, there are no requirements for first-time homebuyers and no income restrictions beyond USDA guidelines.

• The minimum representative credit score required is 660, with all borrowers needing at least one credit score.

• Eligible property types and locations are consistent with the forgivable option, excluding certain unique homes and properties in specific areas like New York and Delaware.

Shared Appreciation Feature

One unique aspect of the SmartBuy DPA is the Shared Appreciation feature, applicable to both the 5-Year Forgivable and 30/10 Repayable options. Here’s how it works:

Shared Appreciation Second Lien:

• When the property is sold, refinanced, or the loan is paid in full, the program requires a share of the appreciated value to be paid back. This share is calculated based on the appreciation amount, less the borrower’s recoverable investment.

• The term for the second lien is 30 years with a fixed rate of 6%.

• During the first three years, 100% of the appreciation is shared. This percentage decreases over time, reaching 60% during years four and five, and finally, 40% for FHA loans (or 30% for USDA loans) if sold or refinanced after the fifth year.

Additional Considerations

Property Locations:

• The SmartBuy DPA is available in most states except for certain restricted areas, including New York, Coastal Barrier Reef, flood zones, and oceanfront properties.

Blended Credit Score Option:

• A new feature allows for qualification by averaging the representative credit scores of occupying borrowers. This requires that the primary wage earner, who must earn at least 60% of household income, has a higher credit score.

Debt-to-Income (DTI) and Loan-to-Value (LTV) Ratios:

• The maximum DTI ratio is 50% with Automated Underwriting System (AUS) approval for ARMs. Fixed-rate DTI follows agency guidelines.

• LTV ratios are based on FHA and USDA program guidelines.

Underwriting Requirements:

• Approval by an Automated Underwriting System (DU, LPA, GUS) is necessary, with manual underwriting exceptions allowed for manually downgraded files.

Eligible Lenders:

• Lenders must be approved by Click n’ Close, Inc.’s Correspondent Division as a delegated lender, and the program is available in Click n’ Close’s Wholesale Divisions.

The SmartBuy DPA Program presents a compelling opportunity for eligible homebuyers to receive financial assistance for their down payment, with flexible terms and options to fit different financial situations. Understanding the qualifications and terms is crucial to making the most of this program and achieving your homeownership dreams.