May 30, 2024 • 35 mins
Are you a loan officer looking to expand your expertise and provide invaluable support to your clients? Dive into this essential episode of the "Loan Officer Training" podcast, where we unravel the intricacies of structuring down payment assistance loans.
In "How to Structure a Down Payment Assistance Loan," our expert hosts will guide you through the step-by-step process of helping clients navigate one of the biggest hurdles in home buying – the down payment. You'll learn about the various types of assistance programs available, key eligibility requirements, and the strategic approach to aligning these programs with your clients' unique financial situations.
This episode is packed with practical tips, real-life examples, and insider advice that will empower you to offer enhanced value to your clients. Whether you're new to the field or a seasoned pro, this is your opportunity to master the tools and techniques that can make homeownership a reality for more people. Tune in and elevate your loan officer skills to the next level!
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Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
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The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording May 30, 2 (00:00):
So welcome everyone.
My name is Kyle Hiersche.
I'm the COO of the MortgageCalculator joined here by our
President Nick Hiersche and oursales manager Jose Gonzalez.
We are a lender that specializesin non QM loans and what we do
every Tuesday, Wednesday andThursday evening at 7 p.
m.
Eastern is a loan officertraining series and a deep dive
into a different area.
Training topic.
Tonight's topic is going to behow to structure a down payment
(00:22):
assistance loan.
So very crucial for every loanofficer to know this.
So I will let Jose go ahead andtake it over.
I know you have a presentationready.
So let's go ahead and get intoit.
Good evening, everybody.
Thank you for joining us fortonight's training on down
payment assistance also referredto as D P.
(00:45):
A.
So tonight's presentation, howto structure a down payment
assistance loan.
Now, what I will state as adisclaimer here to all out there
is down payment is more downpayment assistance, you know
there's a lot of misconceptionsas to what it really is.
(01:07):
It's a, it's a, it, it is analluring aphrodisiac is what I
like to call it.
Right.
Sounds really good.
But sometimes when you break itdown, it may not exactly be.
What you thought it was may notmeet the objective in the manner
that you thought it was going tobe met.
So it's very critical tounderstand how down, how these
(01:31):
down payment assistance programswork so you can give the proper
consultation to your borrowerand make sure you're not just
having the borrower chasing, youknow, doing a.
Wild goose chase you know, aftersomething that is not going to
be attainable or will not meettheir objective.
(01:52):
So let's get right into it.
I mean, we, we have, I mean,just today I was discussing down
payment assistance with one ofour MLOs.
So truly hope that they are onthis training.
So what exactly is down paymentassistance?
Well, down payment assistance istypically programs that assist
(02:16):
borrowers with the required downpayment and or closing costs
associated with their home.
Purchase, right?
So there is many differentoptions.
You have your locally basedoptions.
Like for example, hometownheroes is a locally based
option, which by local, now I'mnot just talking about your city
(02:41):
by local, we're talking aboutit, it can be funded by the
city.
The county or state governments.
I think hometown hero is aFlorida program that we have
here.
So the locally based option isnot the one that we at the
mortgage calculator typicallyoffer.
(03:02):
We're a national company.
And the obstacle with thelocally based options is that
all the company compensation hasto match.
And where this becomes an issueis because the locally based
options will tend to restrictthe compensation that is
(03:23):
possible to be earned by thecompany.
Which is like I mentioned thebiggest obstacle because all
company comp has to match in agiven state.
So what do I mean by that?
for example We are as a company.
We are lenders.
We are at 2.
75 comp that is our companyCompensation and from there is
(03:44):
where we pay our loan officerscover expenses and all that good
stuff And our loan officers havea certain compensation based on
their agreements with us.
Now the issue with the locallybased options is that they'll,
when they restrict the comp thatthe company can be paid on a
loan, that's where the issuearises.
(04:06):
Because now that, that optionmay say that you can't make more
than One and a half or 2 percentor 2.
5 percent total compensation.
So then the only way that we, asa company would be able to
participate in that program inthat given state of, let's say
Florida, for example, is if as acompany, we lowered our comp in
(04:28):
that state to 2.
5%.
So that's the issue that we facewith the locally based programs.
And also the issue.
With the fact that the companyhas to apply and be approved.
The MLO has to be has to applyand be approved.
So it does you know have thoseobstacles.
And then the other issue thatthe locally based DPA options
(04:52):
are going to present is on thelogistics side.
Typically there's going to be asecond approval required.
You have, you're going to haveto get the first approval.
For the first mortgage, whetheror whatever it may be FHA, USDA,
a first time home buyer,conventional home, possible home
ready.
One of those affordable options.
(05:12):
Once you get that approval, thenyou submit to the down payment.
assistance agency for theirreview of the file and issue
their approval.
So again, you have to take thattype of a logistical concern
into consideration.
It's, you know, because theseare going to be purchases.
(05:33):
These are not going to be refi'sor cash out refi's or the
borrower may be willing to wait,but a purchase that has a set
timeline.
on a contract.
So these locally based optionslike hometown heroes, for
example, can be combined withFHA, USDA and the conventional
loans, typically 3 percent down,which would be either the first
time home buyer, 3 percent downoption or the affordable option,
(05:57):
not requiring you to be a firsttime home buyer, like Home
Possible and Home Ready.
The locally based programs arealso usually going to have
income limitations, right, maxamount based on the number of
members in the family, becausethey are looking, you know, to
assist in that manner.
(06:17):
So again, I put the locallybased option out there just to
give some context so that thenwe can discuss in more detail
the options that we do offer atthe mortgage calculator, which
is the national.
Option, right?
The national option, veryimportantly, does not require
(06:39):
the MLO nor the company to beapproved by the program, only
that the company be approved bythat particular lender or
investor that offers it, that wewere able to submit our loans to
them for review and for funding.
So that's the key.
As long as we're approved bythat conduit, by that lender,
(07:01):
let's say if it's an FHA loan,then we can offer the program as
long as also that lenderparticipates in the program.
Another key component there.
So what we have structured todayis what we have that is possible
with our partners.
So another key component here isThat the national option does
(07:23):
not have income limits, nor anytype of restrictions like for
first time home buyer oranything like that.
No income limits, no first timehome buyer requirements of any
type.
And we do have repayable optionsand non repayable, also known as
(07:43):
forgivable options.
The forgivable one, You don'thave to pay, make any payments
ever, nor do you have to payback.
And I'll get into that moredetail.
The repayable one.
You do have to pay back.
It does have a set term, butthere are reasons why you would
choose a repayable option overthe forgivable option.
(08:04):
Now be aware that most option,most of these down payment
assistance options requireborrower paid pricing, which
will affect the borrower's cashto close.
So obviously when you're lookingat the rate and it's borrower
paid pricing, you got to lookfor the rate that has.
Par plus pricing, pricing above100, preferably as close to 102.
(08:27):
75 that you can get if you're aloan officer at the mortgage
calculator.
So we can cover the comp withoutany loan discount fee to the
borrower, because that's whatends up happening.
If it's a little short, there'sgoing to be.
On that borrower pay pricing,because what it boils down to is
the borrower is going to pay upfront.
Then you get a par plus pricing,which offsets the borrower's
(08:51):
upfront fee.
And you try to offset the fullamount of that 2.
75 fee with a 2.
75 lender credit built into thepricing.
The great thing about this isthat the option that we work
with has amazing pricing, blowsthe doors off most of the other
national DPA options thatusually require seller
(09:13):
contribution or the full 2.
75 to be paid by the borrower,which sort of defeats the
purpose of down.
(09:39):
Oh, sorry about that.
So that was the main differencethen in the options.
Then as I was stating, I thinkwe lost about 20 seconds there
is that there are no incomelimits nor first time homebuyer
restrictions.
We have pay repayable and nonrepayable, which are also known
as forgivable options.
(09:59):
And then be aware that mostoptions do require borrower paid
pricing, right?
So it's 2.
75 upfront fee to the which wethen try to offset by picking a
rate.
which has lender credit, right?
And if it has lender credit,then you try to offset it.
(10:22):
Okay.
So and that's the biggestchallenge I was saying, because
the option that we havebasically blows the doors off of
most of the national optionsthat are going to require the
bar to come in with like 2.
75 or 2%.
And cost to the borrower, whichalmost defeats the purpose of
having a down payment assistanceprogram, which is typically for
(10:42):
borrowers with low funds orlimited funds to close.
So that is the biggestchallenge.
What we like to when we'recomparing, do we go DPA?
Or do we just try to find an FHArate with a good amount of
lender credit already built intypically with a borrower with
good credit score.
(11:03):
We can find FHA par plus pricingwhere it's fully lender paid
that still offers 1%, andsometimes as much as one and a
half percent lender credit.
At rates that are going to bebetter than the DPA rate.
So you don't get the full threeand a half percent of the DPA.
You may get one and a halfpercent, but you're not going to
(11:26):
be paying two points in fees, soyou might end up at the same
place, but the DPA at a higherrate.
And the non DPA at a lower rate.
So that's always the analysis tomake.
So what are the, some of thetransaction details that we're
talking about here, right?
(11:46):
Well.
First and foremost, purchasesonly, right?
No cash out refis or refisbecause that really defeats the
whole purpose.
This is down payment assistanceand you can only have a down
payment if you have a purchase.
This national program, now againI wanted to emphasize what I'm,
(12:06):
what I am breaking down here inthese slides are the national
program that we can I justshared the info on the local
programs, just so you can seehow this is a little bit
different.
So this national program can becombined with FHA or USDA loans.
So just imagine that a hundredpercent financing and a USDA
(12:29):
loan with.
Three and a half percent of thepurchase price and forgivable
DPA, which can be used for theclosing costs can result in a
cashless transaction.
And keep in mind also that theforgivable option does allow,
and the repairable does allowfor 100 percent of the borrowers
(12:50):
required cash to close, meaningtheir down payment and their
closing costs can all come fromdown payment assistance.
If you can structure it that wayor down payment assistance, plus
seller credit.
If you can structure it thatway, if you're in a market where
sellers are open to givingseller credit for the right
price, you can structure withdown payment assistance.
(13:12):
And set a credit, a fullcashless transaction, and with
some other options I'm going toshow you in a minute, full
cashless transaction as well.
So, eligible properties, well,eligible borrowers, first of
all, is, first and foremost, no,again I repeat, no first time
buyer, nor income restrictionson our national DPA option.
So it doesn't matter how muchmoney you make, and it doesn't
(13:34):
matter if you're buying yourthird, fourth, or fifth home,
obviously it's for primary homesonly.
Keep that in mind.
I'm just talking about ingeneral, first time homebuyers,
somebody who hasn't owned aproperty in the last three
years.
Well, no first time homebuyer,no income restriction on this
one.
And eligible borrowers are U.
S.
citizens.
non permanent resident aliensand permanent resident aliens.
(13:58):
Unfortunately, ITIN borrowersare not eligible because they're
not going to qualify for an FHAor USDA loans.
And foreign nationals are alsonot eligible because they're not
going to qualify for an FHA orUSDA loan either.
And our eligible properties aresingle family residences, both
(14:18):
detached or attached.
PUDs.
Which is basically a singlefamily detached or attached in
a, in a community with ahomeowners association.
That's a deed restrictedcommunity basically that pays an
HOA fee.
That is a PUD.
A condo, and I'm sorry, I,that's a little typo there.
(14:42):
I'll fix that in a minute.
There you go.
So eligible properties aresingle family residences,
detached or attached, but condosare also eligible duplexes.
And by a duplex, depending whatpart of the country you're in,
you may not refer to it as a, asa duplex, but a duplex is a two
(15:04):
unit property.
Where the borrower lives in oneside.
And rents out the other sidelegally and can derive income to
help them qualify for the loan.
So we, we do allow a duplex forthis loan.
There is a little bit of a loanlevel price adjustment for
duplex.
I think it's a half a point.
To be able to finance the duplexunder DPA and great news.
(15:30):
We also allow manufacturedhomes, but there is also a low
level price adjustment.
I think it's one point to beable to finance the manufactured
home with down paymentassistance, but the good news
is.
It is possible.
So let's break down the optionshere.
(15:51):
Now let's talk about ournational forgivable DPA option.
Now the forgivable DBA optionoffers a borrower 3.
5 percent of the sales price tobe used.
Towards the cash to closerequirement and it can be
depending how you structure thedeal.
Remember if you've got sellercredit as well or interested
(16:14):
party credit, you know, from therealtor that 3.
5 percent may cover the wholeamount.
That would be the down payment.
If you get the closing costcovered.
Minimum 620 score for thisoption.
The forgivable option does havethe lowest credit score of both
options.
The repayable is 660 because therationale here is that the
(16:36):
borrower who's looking for theforgivable option is looking
really not going to be so muchconcerned with the rate really
needs the assistance, so they'rebreaking it down to let them go
down to a lower credit score.
Now this can be combined withFHA.
Or USDA loans only versusforgivable versus a repayable,
(16:57):
which is for FHA only, not USDA.
Now the good news here as well.
A lot of good news for thisprogram.
No interest accrues and nopayment ever.
And good news keeps coming.
It is forgivable after fiveyears or 60 payments if you are
current current on the firstmortgage.
(17:21):
Now what I will note is that itis a higher cost and rate than
the repayable option.
And this is usually would be theonly reason to select the
repayable option, right?
Because why would you walk awayfrom free money?
And the reason is going to bethis.
When I've calculated thedifference in the payment
between the forgivable option,which is just one loan and the
(17:45):
repayable option, which is twoloans, but the interest rate
could be one and a half percentlower in interest rate.
Between one and the other.
And I've usually found that thecombined payment, even with that
extra second mortgage is goingto be 50, 60, sometimes a
hundred dollars lower per monthfor the repayable option than
(18:08):
the forgivable option.
So what may end up happening isyou may not qualify for the
forgivable option because of thehigher payment due to the higher
rate.
And then you may have to go withthe repayable option, still a
good deal, but you got to make apayment.
Which we'll get into in the nextslide.
Now this, as I mentioned acouple of minutes ago, can still
(18:31):
be combined with seller creditfor, or interested party credit
from like the realtor for a trueno money needed transaction
because the, the 3.
5 percent down minimum cashrequired from the borrower on a
FHA loan, for example, can bemet by the DPA.
Now the maximum DTI isdetermined by automated
(18:57):
underwriting.
So, you can't say it's 45, 50,whatever, whatever.
If DTI, if AUS, in this case itwould be DU, approves it, we're
good to go.
Now, in order for the loan to beforgiven, right, it must remain
owner occupied as well throughthe 60th payment.
(19:17):
So, not only do you have to becurrent, At the time that you
want to have the loan beforgiven, but you also still
must reside in the propertybecause if at any time you move
out of the property, that loan,you can, the first loan can stay
there, but the second loan, theDPA loan would have to be paid
(19:37):
back if you move out of theproperty and critical that I
mentioned here, right, whenwe're talking about pricing,
this is borrower paid pricing.
on these options, right?
When you're looking at the rateswithout, you know, you're going
to be looking at their ratesheets, borrower paid pricing.
So make sure to check the coston the rate and, and, you know,
(20:02):
act accordingly.
Again, you want to get a costthat includes a lender credit so
that you can offset the cost.
The borrower paid fee with thelender credit on the rate.
Sometimes you can make it allthe way.
Sometimes you end up being alittle short and the bar has to
come in with like a quarterpoint or half a point.
If you want to keep it at the,at the lower cost, you know,
(20:22):
it's going to be the rate,probably so a little bit above 8
percent is going to be the ratefor the lowest cost option on a
DPA to fully take advantage.
So see, they're doing a littlebit about what I, of, of what I
suggested.
They're raising the rate.
To contribute.
So some of the money comes fromthe DPA agency.
And I'm sure some of the moneycomes from the participating
(20:45):
lender in the form of a I guess,silent lender credit, right?
More or less.
And like I mentioned already,two unit properties are
eligible.
That's pretty exciting for ourhouse hackers out there, right?
Ultimate house hat get DPA.
No money down at all out of yourpocket and get a duplex.
(21:07):
That's a sweet deal.
House hackers.
And now our national repayableDP option again, no income, no
first time home buyerrestrictions.
Now the down payment assistancefor this program, the 3.
5 percent of the sales price,which is what we have, the
(21:28):
assistance is equal to 3.
5 percent of the lower of theappraised value or the purchase
price.
Right.
This and the assistance isprovided as a fixed rate second
mortgage at a 9.
99 percent interest rate with a30 year amortization, but a
(21:51):
balloon payment due at the endof 10 years.
So at the end of the 120thpayment.
The loan is due at that point.
Hopefully the borrower hasalready, you've already
refinanced them out of thatcombo loan into just one loan.
You know, 10 years is a longtime.
I'm sure rates are going to be alot lower in a year or two,
(22:13):
where then that borrower, youcould reach out to them or they
can reach out to you and youcould refinance them out of the
first and the second into a newlower, no mortgage insurance.
Conventional first mortgage atan 80 percent loan to value.
And you're going to really lowertheir monthly payment all the
way around.
No, am I no second mortgagepayment and an interest rate is
(22:37):
probably going to be 2 percentlower than what you currently
have right now.
That'd be win, win, win.
And then on top of that, maybeeven get a little cash out,
right?
That would be awesome.
Or at that point, maybe theycould even buy the next one.
The, the repayable option.
Is a minimum 660 credit scoreand it can only be combined with
(23:01):
FHA loans.
You cannot combine for whateverreason that's in their
guidelines.
You cannot combine the repayableoption with an F, with a, with a
USDA only for FHA.
And it again may be used, therepayable has the same feature
as a forgivable that may be usedfor up to 100 percent of the
borrower's cash to close loan.
(23:23):
Requirement never eligible for acash or refinery eligible for a
refi of any type.
This is a purchase option onlymaximum DTI determined by a U S
in this case is going to be D U.
We run our FHA loans all throughD U and two unit properties also
(23:43):
permitted on the repayableoption.
Now we have another twistbecause they have a whole bunch
of options here.
So I'm putting here repayableclosing costs.
option with up to 6 percentassistance for all cash to close
required.
Well, not exactly all cash toclose because actually in this
(24:07):
option, you got to have 3.
5 percent of your own funds.
That's why they call it closingcost assistance and not down
payment assistance.
The assistance is in the form ofa 9.
99%.
Again, the same fixed rate,second mortgage, 30 year
amortization with a balloon duein 10 years.
Never income or first timehomebuyer restrictions.
(24:30):
This is also a lower rate thanthe forgivable option.
And it is offered in 3%, 4%, 5%,or 6 percent of the purchase
price in assistance.
Now, usually that 6 percent isgoing to come into play since
this is for closing cause inyour lower price properties,
right?
Where you get a hundred thousanddollar property.
(24:51):
A lot of the costs are fixedcosts, not based on the loan
amount.
So you can end up easily with.
And if you're in a highinsurance cost area, like we are
here in South Florida on a,let's say 150, 180, 000
properties of which there arenone here in South Florida, by
the way, just don't want tothrow you off on that.
But on a lower value property.
(25:12):
The 6 percent could only come upto 6, 000 or 8, 000 or 9, 000,
which would barely cover yourclosing costs versus if it's a
400, 000 property, you may onlyneed the 3 percent down option
to cover your 12, 000 in closingcosts, right?
So that's, that's the keycomponent here of why you would
have a 6 percent option.
(25:34):
Again, this one can only becombined with FHA loans, no cash
back.
The DTI max is per automatedunderwriting in this case, DU.
And this one also has a minimumsix 60 credit score.
And in our last slide herebreaking it down here for you on
(25:59):
how to set this up for In the L.
O.
S.
And it seems like my picture gotcut off a little bit there.
So let me see if I can try toremedy this situation.
Give me a second.
(26:20):
Seems like it moved a little biton me.
All right, well, we, I think youcan get most of it there.
So we use Encompass here, but,you know, you may be using, you
know, CalixPoint or any of theother LOSs out there, right?
(26:41):
But what's, what's reallyimportant here is to make sure
to set it up properly.
Make sure to set the 1003 upproperly in your LOS, in our
case Encompass, to reflect thegift so that the AUS submission,
in this case DU, picks up thedown payment assistance and
gives credit for it as an asset.
(27:06):
Now, how do you do that?
There's basically two steps.
Steps that you have to takehere.
The first step is that if thisis obviously from compass here
now, the you have to go to theforms in, in compass that you
click on the forms tab and youlook for the Fannie Mae
(27:27):
additional.
Data form.
And in the Fannie Mae additionaldata form, you see right there,
you're going to click on thedownward facing arrow to open up
the dropdown menu, and you'regoing to select FHA gift source
government agency, right?
So when you see that page, youselect that.
(27:49):
In the drop down and then you'llhave to go to section 4D as in
dog in the 1003 coming on page4, but section 4D in the gift
section and then you need to setup the gifts, but here it's
tricky because you're not goingto find what you need the
(28:13):
federal agency.
Fannie Freddie says right there,unless you first click the tab
that I have highlighted there inyellow that says show all gifts
or grants.
You need to click that so thatthen it opens up the drop down
so that then you can select theagency option and then input the
(28:35):
amount if it's deposited, nogift of cash, who's going to be
getting it or borrower or a coborrower.
And that's it.
Then you run your automatedunderwriting.
In this case, again, it's goingto be DU and hopefully you will
receive your approved eligiblebecause one of the things that
you issues you may run into,theoretically, it says DPA is
(28:59):
available down to a 620, butdepending on the risk profile of
the deal you may not get anautomated underwriting approval
in which case then manualunderwriting is still an option
for this loan.
But at that point, then you'regoing to remember manual
underwriting is 43 percentmaximum total debt DTI.
(29:24):
And there is you know, could beother restrictions if you're
going manual underwriting forthis type of loan.
So always best if automatedunderwriting Gives you the hit.
So again, remember the pointsthat we covered today.
One of the key components thatyou have to consider on these
down payment assistance loans iswhat is the objective here?
(29:46):
How much net money is theborrower going to receive from
the transaction?
And is there any other way tostructure it?
Where, you know, they may stillbe able to meet the mark.
Obviously if they have no moneyor very little money then, and
they still qualify at the higherrate, then they may not mind
that higher rate if it gets themwhere they need to be.
(30:10):
Because like I like to say, 100percent of nothing is nothing
and it the loan option with DPA,the higher loan helps you meet
the objective of buying thehome.
You can always refinance out ofthat home a year or two down the
road when the rates drop alittle bit.
Property has a little bit ofequity.
Get into the conventional loan.
(30:31):
Maybe even get rid of the EMI,get rid of that second repayable
option.
And or if you're in the higherinterest rate, just get rid of
that, you know, 8 percent FHArate into who knows maybe a
three or 4 percent FHA rate.
Right.
But the key is you own the homealready.
(30:51):
And.
you're able to do that maneuverbecause you used the DPA to buy
it.
So that's the key.
Always be the good consultantwith your borrowers.
Listen to what their objectiveand break it down for them so
you can make it happen.
Looking forward to helping youall structure your DPA loans.
(31:25):
Oh, sorry.
I was muted there.
Okay.
Looks like we got some questionshere today.
A couple of them.
let's see.
Okay.
One of them says, nevermind,just answered.
I guess we should pull up thenext next one.
Yeah, that one was talking aboutprobably the closing cost
assistance option, whichrequires them to have 3.
5 percent of their own funds.
Okay.
(31:46):
Next question here.
If DPA can be combined with anFHA first, where do we apply for
the DPA combined with the FHAfirst loan?
Well, that's the beautiful thingabout it.
This is a streamlined process.
Once you submit the loan as aDPA loan structured, how we have
it here, like I just showed youin this last slide.
(32:07):
Our conduit will take care ofall of that for you.
Once you, if it's submitted as aloan with down payment
assistance, there is no secondapproval needed.
It's all handled in one shot.
You don't have to worry aboutmultiple submissions, nor
multiple approvals, which isanother logistical benefit of
(32:27):
this option.
All right.
Next question is, is therepayable option DPA similar to
a piggyback loan?
Also, can you use forgivable DPAinstead of a piggyback loan?
Well, I'm trying to figure outif we're talking about the
piggyback is like a combo loanlike an 80 15 5 kind of deal.
(32:49):
No, it's, I mean, it's reallynot.
It's two totally differentthings.
The piggyback loans are, it'sgoing to be either a HE loan,
fixed rate HE loan or a HELOC.
Full term loan, 30 years, not,not doesn't have a balloon in 10
years and never forgivable,always repayable.
So you really wouldn't be ableto offset use a DPA for a
(33:14):
piggyback because the piggybackis usually going to be depending
what you're using it for atleast 15 percent of the loan to
value of the transaction.
Whereas the DPA is, you know, 3.
5 percent for the DPA option andfor the closing costs option up
to 6%.
(33:35):
And the question there, theyadded to avoid PMI.
No, exactly.
So yeah, if it's going to be inthat manner, no, because you
wouldn't be able to reach a highenough of an amount to cover.
Plus, the DPA is helping youwith your 3.
5 percent down only, right?
But it's not going to help youwith, you know, 15 percent down
(33:55):
or 20 percent down.
Remember all, all FHA loans over15 years have MI for life.
Right.
No matter what the LTV is.
So, M.
I.
is life of the loan.
So, there is no avoiding M.
I.
with an FHA loan.
Oh, true.
Another thing yeah, to avoid P.
M.
I.
here now, yeah, FHA is always P.
M.
I.
on those loans, no matter theLTV.
(34:17):
The only, the only, the only, Iguess, caveat to that is if your
initial loan to value is 90percent or lower, on the initial
FHA loan, then I believe whenyou get down to a 78 percent
loan to value or 11 years,whichever comes first, then they
let you cancel it.
But you have to start at a 90percent LTV, not applicable for
(34:38):
the 96.
5 percent or any LTV above 90%.
All right.
I don't see any other questions,so I think we can go ahead and
wrap it up.
Remember we do this at 7 p.
m.
Eastern time on Tuesdays,Wednesdays, and Thursdays.
So we will be back next weekwith some new topics.
We appreciate everybody tuningin.
We'll see you next Tuesday, 7 p.
(34:59):
m.
Eastern for the next episode ofthe Loan Officer Training Series
with the Mortgage Calculator.
So welcome everyone.
My name is Kyle Hiersche.
I'm the COO of the MortgageCalculator joined here by our
President Nick Hiersche and oursales manager Jose Gonzalez.
We are a lender that specializesin non QM loans and what we do
every Tuesday, Wednesday andThursday evening at 7 p.
m.
Eastern is a loan officertraining series and a deep dive
into a different area.
Training topic.
Tonight's topic is going to behow to structure a down payment
(00:22):
assistance loan.
So very crucial for every loanofficer to know this.
So I will let Jose go ahead andtake it over.
I know you have a presentationready.
So let's go ahead and get intoit.
Good evening, everybody.
Thank you for joining us fortonight's training on down
payment assistance also referredto as D P.
(00:45):
A.
So tonight's presentation, howto structure a down payment
assistance loan.
Now, what I will state as adisclaimer here to all out there
is down payment is more downpayment assistance, you know
there's a lot of misconceptionsas to what it really is.
(01:07):
It's a, it's a, it, it is analluring aphrodisiac is what I
like to call it.
Right.
Sounds really good.
But sometimes when you break itdown, it may not exactly be.
What you thought it was may notmeet the objective in the manner
that you thought it was going tobe met.
So it's very critical tounderstand how down, how these
(01:31):
down payment assistance programswork so you can give the proper
consultation to your borrowerand make sure you're not just
having the borrower chasing, youknow, doing a.
Wild goose chase you know, aftersomething that is not going to
be attainable or will not meettheir objective.
(01:52):
So let's get right into it.
I mean, we, we have, I mean,just today I was discussing down
payment assistance with one ofour MLOs.
So truly hope that they are onthis training.
So what exactly is down paymentassistance?
Well, down payment assistance istypically programs that assist
(02:16):
borrowers with the required downpayment and or closing costs
associated with their home.
Purchase, right?
So there is many differentoptions.
You have your locally basedoptions.
Like for example, hometownheroes is a locally based
option, which by local, now I'mnot just talking about your city
(02:41):
by local, we're talking aboutit, it can be funded by the
city.
The county or state governments.
I think hometown hero is aFlorida program that we have
here.
So the locally based option isnot the one that we at the
mortgage calculator typicallyoffer.
(03:02):
We're a national company.
And the obstacle with thelocally based options is that
all the company compensation hasto match.
And where this becomes an issueis because the locally based
options will tend to restrictthe compensation that is
(03:23):
possible to be earned by thecompany.
Which is like I mentioned thebiggest obstacle because all
company comp has to match in agiven state.
So what do I mean by that?
for example We are as a company.
We are lenders.
We are at 2.
75 comp that is our companyCompensation and from there is
(03:44):
where we pay our loan officerscover expenses and all that good
stuff And our loan officers havea certain compensation based on
their agreements with us.
Now the issue with the locallybased options is that they'll,
when they restrict the comp thatthe company can be paid on a
loan, that's where the issuearises.
(04:06):
Because now that, that optionmay say that you can't make more
than One and a half or 2 percentor 2.
5 percent total compensation.
So then the only way that we, asa company would be able to
participate in that program inthat given state of, let's say
Florida, for example, is if as acompany, we lowered our comp in
(04:28):
that state to 2.
5%.
So that's the issue that we facewith the locally based programs.
And also the issue.
With the fact that the companyhas to apply and be approved.
The MLO has to be has to applyand be approved.
So it does you know have thoseobstacles.
And then the other issue thatthe locally based DPA options
(04:52):
are going to present is on thelogistics side.
Typically there's going to be asecond approval required.
You have, you're going to haveto get the first approval.
For the first mortgage, whetheror whatever it may be FHA, USDA,
a first time home buyer,conventional home, possible home
ready.
One of those affordable options.
(05:12):
Once you get that approval, thenyou submit to the down payment.
assistance agency for theirreview of the file and issue
their approval.
So again, you have to take thattype of a logistical concern
into consideration.
It's, you know, because theseare going to be purchases.
(05:33):
These are not going to be refi'sor cash out refi's or the
borrower may be willing to wait,but a purchase that has a set
timeline.
on a contract.
So these locally based optionslike hometown heroes, for
example, can be combined withFHA, USDA and the conventional
loans, typically 3 percent down,which would be either the first
time home buyer, 3 percent downoption or the affordable option,
(05:57):
not requiring you to be a firsttime home buyer, like Home
Possible and Home Ready.
The locally based programs arealso usually going to have
income limitations, right, maxamount based on the number of
members in the family, becausethey are looking, you know, to
assist in that manner.
(06:17):
So again, I put the locallybased option out there just to
give some context so that thenwe can discuss in more detail
the options that we do offer atthe mortgage calculator, which
is the national.
Option, right?
The national option, veryimportantly, does not require
(06:39):
the MLO nor the company to beapproved by the program, only
that the company be approved bythat particular lender or
investor that offers it, that wewere able to submit our loans to
them for review and for funding.
So that's the key.
As long as we're approved bythat conduit, by that lender,
(07:01):
let's say if it's an FHA loan,then we can offer the program as
long as also that lenderparticipates in the program.
Another key component there.
So what we have structured todayis what we have that is possible
with our partners.
So another key component here isThat the national option does
(07:23):
not have income limits, nor anytype of restrictions like for
first time home buyer oranything like that.
No income limits, no first timehome buyer requirements of any
type.
And we do have repayable optionsand non repayable, also known as
(07:43):
forgivable options.
The forgivable one, You don'thave to pay, make any payments
ever, nor do you have to payback.
And I'll get into that moredetail.
The repayable one.
You do have to pay back.
It does have a set term, butthere are reasons why you would
choose a repayable option overthe forgivable option.
(08:04):
Now be aware that most option,most of these down payment
assistance options requireborrower paid pricing, which
will affect the borrower's cashto close.
So obviously when you're lookingat the rate and it's borrower
paid pricing, you got to lookfor the rate that has.
Par plus pricing, pricing above100, preferably as close to 102.
(08:27):
75 that you can get if you're aloan officer at the mortgage
calculator.
So we can cover the comp withoutany loan discount fee to the
borrower, because that's whatends up happening.
If it's a little short, there'sgoing to be.
On that borrower pay pricing,because what it boils down to is
the borrower is going to pay upfront.
Then you get a par plus pricing,which offsets the borrower's
(08:51):
upfront fee.
And you try to offset the fullamount of that 2.
75 fee with a 2.
75 lender credit built into thepricing.
The great thing about this isthat the option that we work
with has amazing pricing, blowsthe doors off most of the other
national DPA options thatusually require seller
(09:13):
contribution or the full 2.
75 to be paid by the borrower,which sort of defeats the
purpose of down.
(09:39):
Oh, sorry about that.
So that was the main differencethen in the options.
Then as I was stating, I thinkwe lost about 20 seconds there
is that there are no incomelimits nor first time homebuyer
restrictions.
We have pay repayable and nonrepayable, which are also known
as forgivable options.
(09:59):
And then be aware that mostoptions do require borrower paid
pricing, right?
So it's 2.
75 upfront fee to the which wethen try to offset by picking a
rate.
which has lender credit, right?
And if it has lender credit,then you try to offset it.
(10:22):
Okay.
So and that's the biggestchallenge I was saying, because
the option that we havebasically blows the doors off of
most of the national optionsthat are going to require the
bar to come in with like 2.
75 or 2%.
And cost to the borrower, whichalmost defeats the purpose of
having a down payment assistanceprogram, which is typically for
(10:42):
borrowers with low funds orlimited funds to close.
So that is the biggestchallenge.
What we like to when we'recomparing, do we go DPA?
Or do we just try to find an FHArate with a good amount of
lender credit already built intypically with a borrower with
good credit score.
(11:03):
We can find FHA par plus pricingwhere it's fully lender paid
that still offers 1%, andsometimes as much as one and a
half percent lender credit.
At rates that are going to bebetter than the DPA rate.
So you don't get the full threeand a half percent of the DPA.
You may get one and a halfpercent, but you're not going to
(11:26):
be paying two points in fees, soyou might end up at the same
place, but the DPA at a higherrate.
And the non DPA at a lower rate.
So that's always the analysis tomake.
So what are the, some of thetransaction details that we're
talking about here, right?
(11:46):
Well.
First and foremost, purchasesonly, right?
No cash out refis or refisbecause that really defeats the
whole purpose.
This is down payment assistanceand you can only have a down
payment if you have a purchase.
This national program, now againI wanted to emphasize what I'm,
(12:06):
what I am breaking down here inthese slides are the national
program that we can I justshared the info on the local
programs, just so you can seehow this is a little bit
different.
So this national program can becombined with FHA or USDA loans.
So just imagine that a hundredpercent financing and a USDA
(12:29):
loan with.
Three and a half percent of thepurchase price and forgivable
DPA, which can be used for theclosing costs can result in a
cashless transaction.
And keep in mind also that theforgivable option does allow,
and the repairable does allowfor 100 percent of the borrowers
(12:50):
required cash to close, meaningtheir down payment and their
closing costs can all come fromdown payment assistance.
If you can structure it that wayor down payment assistance, plus
seller credit.
If you can structure it thatway, if you're in a market where
sellers are open to givingseller credit for the right
price, you can structure withdown payment assistance.
(13:12):
And set a credit, a fullcashless transaction, and with
some other options I'm going toshow you in a minute, full
cashless transaction as well.
So, eligible properties, well,eligible borrowers, first of
all, is, first and foremost, no,again I repeat, no first time
buyer, nor income restrictionson our national DPA option.
So it doesn't matter how muchmoney you make, and it doesn't
(13:34):
matter if you're buying yourthird, fourth, or fifth home,
obviously it's for primary homesonly.
Keep that in mind.
I'm just talking about ingeneral, first time homebuyers,
somebody who hasn't owned aproperty in the last three
years.
Well, no first time homebuyer,no income restriction on this
one.
And eligible borrowers are U.
S.
citizens.
non permanent resident aliensand permanent resident aliens.
(13:58):
Unfortunately, ITIN borrowersare not eligible because they're
not going to qualify for an FHAor USDA loans.
And foreign nationals are alsonot eligible because they're not
going to qualify for an FHA orUSDA loan either.
And our eligible properties aresingle family residences, both
(14:18):
detached or attached.
PUDs.
Which is basically a singlefamily detached or attached in
a, in a community with ahomeowners association.
That's a deed restrictedcommunity basically that pays an
HOA fee.
That is a PUD.
A condo, and I'm sorry, I,that's a little typo there.
(14:42):
I'll fix that in a minute.
There you go.
So eligible properties aresingle family residences,
detached or attached, but condosare also eligible duplexes.
And by a duplex, depending whatpart of the country you're in,
you may not refer to it as a, asa duplex, but a duplex is a two
(15:04):
unit property.
Where the borrower lives in oneside.
And rents out the other sidelegally and can derive income to
help them qualify for the loan.
So we, we do allow a duplex forthis loan.
There is a little bit of a loanlevel price adjustment for
duplex.
I think it's a half a point.
To be able to finance the duplexunder DPA and great news.
(15:30):
We also allow manufacturedhomes, but there is also a low
level price adjustment.
I think it's one point to beable to finance the manufactured
home with down paymentassistance, but the good news
is.
It is possible.
So let's break down the optionshere.
(15:51):
Now let's talk about ournational forgivable DPA option.
Now the forgivable DBA optionoffers a borrower 3.
5 percent of the sales price tobe used.
Towards the cash to closerequirement and it can be
depending how you structure thedeal.
Remember if you've got sellercredit as well or interested
(16:14):
party credit, you know, from therealtor that 3.
5 percent may cover the wholeamount.
That would be the down payment.
If you get the closing costcovered.
Minimum 620 score for thisoption.
The forgivable option does havethe lowest credit score of both
options.
The repayable is 660 because therationale here is that the
(16:36):
borrower who's looking for theforgivable option is looking
really not going to be so muchconcerned with the rate really
needs the assistance, so they'rebreaking it down to let them go
down to a lower credit score.
Now this can be combined withFHA.
Or USDA loans only versusforgivable versus a repayable,
(16:57):
which is for FHA only, not USDA.
Now the good news here as well.
A lot of good news for thisprogram.
No interest accrues and nopayment ever.
And good news keeps coming.
It is forgivable after fiveyears or 60 payments if you are
current current on the firstmortgage.
(17:21):
Now what I will note is that itis a higher cost and rate than
the repayable option.
And this is usually would be theonly reason to select the
repayable option, right?
Because why would you walk awayfrom free money?
And the reason is going to bethis.
When I've calculated thedifference in the payment
between the forgivable option,which is just one loan and the
(17:45):
repayable option, which is twoloans, but the interest rate
could be one and a half percentlower in interest rate.
Between one and the other.
And I've usually found that thecombined payment, even with that
extra second mortgage is goingto be 50, 60, sometimes a
hundred dollars lower per monthfor the repayable option than
(18:08):
the forgivable option.
So what may end up happening isyou may not qualify for the
forgivable option because of thehigher payment due to the higher
rate.
And then you may have to go withthe repayable option, still a
good deal, but you got to make apayment.
Which we'll get into in the nextslide.
Now this, as I mentioned acouple of minutes ago, can still
(18:31):
be combined with seller creditfor, or interested party credit
from like the realtor for a trueno money needed transaction
because the, the 3.
5 percent down minimum cashrequired from the borrower on a
FHA loan, for example, can bemet by the DPA.
Now the maximum DTI isdetermined by automated
(18:57):
underwriting.
So, you can't say it's 45, 50,whatever, whatever.
If DTI, if AUS, in this case itwould be DU, approves it, we're
good to go.
Now, in order for the loan to beforgiven, right, it must remain
owner occupied as well throughthe 60th payment.
(19:17):
So, not only do you have to becurrent, At the time that you
want to have the loan beforgiven, but you also still
must reside in the propertybecause if at any time you move
out of the property, that loan,you can, the first loan can stay
there, but the second loan, theDPA loan would have to be paid
(19:37):
back if you move out of theproperty and critical that I
mentioned here, right, whenwe're talking about pricing,
this is borrower paid pricing.
on these options, right?
When you're looking at the rateswithout, you know, you're going
to be looking at their ratesheets, borrower paid pricing.
So make sure to check the coston the rate and, and, you know,
(20:02):
act accordingly.
Again, you want to get a costthat includes a lender credit so
that you can offset the cost.
The borrower paid fee with thelender credit on the rate.
Sometimes you can make it allthe way.
Sometimes you end up being alittle short and the bar has to
come in with like a quarterpoint or half a point.
If you want to keep it at the,at the lower cost, you know,
(20:22):
it's going to be the rate,probably so a little bit above 8
percent is going to be the ratefor the lowest cost option on a
DPA to fully take advantage.
So see, they're doing a littlebit about what I, of, of what I
suggested.
They're raising the rate.
To contribute.
So some of the money comes fromthe DPA agency.
And I'm sure some of the moneycomes from the participating
(20:45):
lender in the form of a I guess,silent lender credit, right?
More or less.
And like I mentioned already,two unit properties are
eligible.
That's pretty exciting for ourhouse hackers out there, right?
Ultimate house hat get DPA.
No money down at all out of yourpocket and get a duplex.
(21:07):
That's a sweet deal.
House hackers.
And now our national repayableDP option again, no income, no
first time home buyerrestrictions.
Now the down payment assistancefor this program, the 3.
5 percent of the sales price,which is what we have, the
(21:28):
assistance is equal to 3.
5 percent of the lower of theappraised value or the purchase
price.
Right.
This and the assistance isprovided as a fixed rate second
mortgage at a 9.
99 percent interest rate with a30 year amortization, but a
(21:51):
balloon payment due at the endof 10 years.
So at the end of the 120thpayment.
The loan is due at that point.
Hopefully the borrower hasalready, you've already
refinanced them out of thatcombo loan into just one loan.
You know, 10 years is a longtime.
I'm sure rates are going to be alot lower in a year or two,
(22:13):
where then that borrower, youcould reach out to them or they
can reach out to you and youcould refinance them out of the
first and the second into a newlower, no mortgage insurance.
Conventional first mortgage atan 80 percent loan to value.
And you're going to really lowertheir monthly payment all the
way around.
No, am I no second mortgagepayment and an interest rate is
(22:37):
probably going to be 2 percentlower than what you currently
have right now.
That'd be win, win, win.
And then on top of that, maybeeven get a little cash out,
right?
That would be awesome.
Or at that point, maybe theycould even buy the next one.
The, the repayable option.
Is a minimum 660 credit scoreand it can only be combined with
(23:01):
FHA loans.
You cannot combine for whateverreason that's in their
guidelines.
You cannot combine the repayableoption with an F, with a, with a
USDA only for FHA.
And it again may be used, therepayable has the same feature
as a forgivable that may be usedfor up to 100 percent of the
borrower's cash to close loan.
(23:23):
Requirement never eligible for acash or refinery eligible for a
refi of any type.
This is a purchase option onlymaximum DTI determined by a U S
in this case is going to be D U.
We run our FHA loans all throughD U and two unit properties also
(23:43):
permitted on the repayableoption.
Now we have another twistbecause they have a whole bunch
of options here.
So I'm putting here repayableclosing costs.
option with up to 6 percentassistance for all cash to close
required.
Well, not exactly all cash toclose because actually in this
(24:07):
option, you got to have 3.
5 percent of your own funds.
That's why they call it closingcost assistance and not down
payment assistance.
The assistance is in the form ofa 9.
99%.
Again, the same fixed rate,second mortgage, 30 year
amortization with a balloon duein 10 years.
Never income or first timehomebuyer restrictions.
(24:30):
This is also a lower rate thanthe forgivable option.
And it is offered in 3%, 4%, 5%,or 6 percent of the purchase
price in assistance.
Now, usually that 6 percent isgoing to come into play since
this is for closing cause inyour lower price properties,
right?
Where you get a hundred thousanddollar property.
(24:51):
A lot of the costs are fixedcosts, not based on the loan
amount.
So you can end up easily with.
And if you're in a highinsurance cost area, like we are
here in South Florida on a,let's say 150, 180, 000
properties of which there arenone here in South Florida, by
the way, just don't want tothrow you off on that.
But on a lower value property.
(25:12):
The 6 percent could only come upto 6, 000 or 8, 000 or 9, 000,
which would barely cover yourclosing costs versus if it's a
400, 000 property, you may onlyneed the 3 percent down option
to cover your 12, 000 in closingcosts, right?
So that's, that's the keycomponent here of why you would
have a 6 percent option.
(25:34):
Again, this one can only becombined with FHA loans, no cash
back.
The DTI max is per automatedunderwriting in this case, DU.
And this one also has a minimumsix 60 credit score.
And in our last slide herebreaking it down here for you on
(25:59):
how to set this up for In the L.
O.
S.
And it seems like my picture gotcut off a little bit there.
So let me see if I can try toremedy this situation.
Give me a second.
(26:20):
Seems like it moved a little biton me.
All right, well, we, I think youcan get most of it there.
So we use Encompass here, but,you know, you may be using, you
know, CalixPoint or any of theother LOSs out there, right?
(26:41):
But what's, what's reallyimportant here is to make sure
to set it up properly.
Make sure to set the 1003 upproperly in your LOS, in our
case Encompass, to reflect thegift so that the AUS submission,
in this case DU, picks up thedown payment assistance and
gives credit for it as an asset.
(27:06):
Now, how do you do that?
There's basically two steps.
Steps that you have to takehere.
The first step is that if thisis obviously from compass here
now, the you have to go to theforms in, in compass that you
click on the forms tab and youlook for the Fannie Mae
(27:27):
additional.
Data form.
And in the Fannie Mae additionaldata form, you see right there,
you're going to click on thedownward facing arrow to open up
the dropdown menu, and you'regoing to select FHA gift source
government agency, right?
So when you see that page, youselect that.
(27:49):
In the drop down and then you'llhave to go to section 4D as in
dog in the 1003 coming on page4, but section 4D in the gift
section and then you need to setup the gifts, but here it's
tricky because you're not goingto find what you need the
(28:13):
federal agency.
Fannie Freddie says right there,unless you first click the tab
that I have highlighted there inyellow that says show all gifts
or grants.
You need to click that so thatthen it opens up the drop down
so that then you can select theagency option and then input the
(28:35):
amount if it's deposited, nogift of cash, who's going to be
getting it or borrower or a coborrower.
And that's it.
Then you run your automatedunderwriting.
In this case, again, it's goingto be DU and hopefully you will
receive your approved eligiblebecause one of the things that
you issues you may run into,theoretically, it says DPA is
(28:59):
available down to a 620, butdepending on the risk profile of
the deal you may not get anautomated underwriting approval
in which case then manualunderwriting is still an option
for this loan.
But at that point, then you'regoing to remember manual
underwriting is 43 percentmaximum total debt DTI.
(29:24):
And there is you know, could beother restrictions if you're
going manual underwriting forthis type of loan.
So always best if automatedunderwriting Gives you the hit.
So again, remember the pointsthat we covered today.
One of the key components thatyou have to consider on these
down payment assistance loans iswhat is the objective here?
(29:46):
How much net money is theborrower going to receive from
the transaction?
And is there any other way tostructure it?
Where, you know, they may stillbe able to meet the mark.
Obviously if they have no moneyor very little money then, and
they still qualify at the higherrate, then they may not mind
that higher rate if it gets themwhere they need to be.
(30:10):
Because like I like to say, 100percent of nothing is nothing
and it the loan option with DPA,the higher loan helps you meet
the objective of buying thehome.
You can always refinance out ofthat home a year or two down the
road when the rates drop alittle bit.
Property has a little bit ofequity.
Get into the conventional loan.
(30:31):
Maybe even get rid of the EMI,get rid of that second repayable
option.
And or if you're in the higherinterest rate, just get rid of
that, you know, 8 percent FHArate into who knows maybe a
three or 4 percent FHA rate.
Right.
But the key is you own the homealready.
(30:51):
And.
you're able to do that maneuverbecause you used the DPA to buy
it.
So that's the key.
Always be the good consultantwith your borrowers.
Listen to what their objectiveand break it down for them so
you can make it happen.
Looking forward to helping youall structure your DPA loans.
(31:25):
Oh, sorry.
I was muted there.
Okay.
Looks like we got some questionshere today.
A couple of them.
let's see.
Okay.
One of them says, nevermind,just answered.
I guess we should pull up thenext next one.
Yeah, that one was talking aboutprobably the closing cost
assistance option, whichrequires them to have 3.
5 percent of their own funds.
Okay.
(31:46):
Next question here.
If DPA can be combined with anFHA first, where do we apply for
the DPA combined with the FHAfirst loan?
Well, that's the beautiful thingabout it.
This is a streamlined process.
Once you submit the loan as aDPA loan structured, how we have
it here, like I just showed youin this last slide.
(32:07):
Our conduit will take care ofall of that for you.
Once you, if it's submitted as aloan with down payment
assistance, there is no secondapproval needed.
It's all handled in one shot.
You don't have to worry aboutmultiple submissions, nor
multiple approvals, which isanother logistical benefit of
(32:27):
this option.
All right.
Next question is, is therepayable option DPA similar to
a piggyback loan?
Also, can you use forgivable DPAinstead of a piggyback loan?
Well, I'm trying to figure outif we're talking about the
piggyback is like a combo loanlike an 80 15 5 kind of deal.
(32:49):
No, it's, I mean, it's reallynot.
It's two totally differentthings.
The piggyback loans are, it'sgoing to be either a HE loan,
fixed rate HE loan or a HELOC.
Full term loan, 30 years, not,not doesn't have a balloon in 10
years and never forgivable,always repayable.
So you really wouldn't be ableto offset use a DPA for a
(33:14):
piggyback because the piggybackis usually going to be depending
what you're using it for atleast 15 percent of the loan to
value of the transaction.
Whereas the DPA is, you know, 3.
5 percent for the DPA option andfor the closing costs option up
to 6%.
(33:35):
And the question there, theyadded to avoid PMI.
No, exactly.
So yeah, if it's going to be inthat manner, no, because you
wouldn't be able to reach a highenough of an amount to cover.
Plus, the DPA is helping youwith your 3.
5 percent down only, right?
But it's not going to help youwith, you know, 15 percent down
(33:55):
or 20 percent down.
Remember all, all FHA loans over15 years have MI for life.
Right.
No matter what the LTV is.
So, M.
I.
is life of the loan.
So, there is no avoiding M.
I.
with an FHA loan.
Oh, true.
Another thing yeah, to avoid P.
M.
I.
here now, yeah, FHA is always P.
M.
I.
on those loans, no matter theLTV.
(34:17):
The only, the only, the only, Iguess, caveat to that is if your
initial loan to value is 90percent or lower, on the initial
FHA loan, then I believe whenyou get down to a 78 percent
loan to value or 11 years,whichever comes first, then they
let you cancel it.
But you have to start at a 90percent LTV, not applicable for
(34:38):
the 96.
5 percent or any LTV above 90%.
All right.
I don't see any other questions,so I think we can go ahead and
wrap it up.
Remember we do this at 7 p.
m.
Eastern time on Tuesdays,Wednesdays, and Thursdays.
So we will be back next weekwith some new topics.
We appreciate everybody tuningin.
We'll see you next Tuesday, 7 p.
(34:59):
m.
Eastern for the next episode ofthe Loan Officer Training Series
with the Mortgage Calculator.
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