Question about Home Advantage Down Payment Assistance (DPA)

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mortgageporter-thinkingYesterday I received an email with this question that I thought would be helpful to my readers considering the popular Home Advantage Mortgage program with down payment assistance:

I’ve been studying the different loan programs in WA State and came across your website. We’re considering taking out a Home Advantage mortgage but need clarification on one of the restrictions.

You said “The second mortgage has a maximum loan amount of 4% of the first mortgage loan amount and the payment is deferred for 30 years at zero percent interest. Should the home owner convert the property to an investment/rental or sell the home, the second mortgage will be called due.”  What exactly does this mean for most buyers who don’t usually live in the same home for 30 years? Are they liable to repay the loan (plus interest?) should any of the above occur?

Home Advantage Mortgage is a program offered by the Washington State Housing Finance Commission for Washington state home buyers. It can be paired with 8 different types of down payment assistance programs, including the Home Advantage DPA (down payment assistance).  These DPAs are actually second mortgages that are recorded along with the new first mortgage.

The DPA in question is the  Home Advantage second mortgage (the other DPAs have different terms) which is based on 4% of the first mortgage at 0% interest with payments deferred for 30 years.  The balance of the DPA may be called due if the property is no longer owner occupied or if the home owner is refinancing.

Here are possible scenarios with the Home Advantage first mortgage and DPA/second mortgage should the home owner trigger the mortgage being called due.

Homeowner sells their home. In this case, the first and second mortgages will need to be paid off with the proceeds from the sale of the home.  This is assuming that their is enough equity for the home owner to sell their home and pay off both mortgages and other closing cost (excise tax, title and escrow fees, agent commissions, etc.).

Homeowner refinances their home. Currently the second mortgages/DPAs offered through the Washington State Housing Commission cannot be subordinated. Therefore, if the home owner is wanting to refinance the first mortgage, they will most likely need to pay off the second mortgage in order to refi. If the home owner has enough home equity for their new proposed mortgage to include the DPA loan into the new loan, this is a possibility. If they do not, they may have to pay off the second mortgage with cash.

Homeowner rents out their home. If the homeowner decides to rent their home (no longer use the home as their primary residence), it’s my understanding the loan for the second mortgage/DPA may be called due. This means that the entire balance of the second mortgage will be due in one lump sum.

Homeowner keeps their home for 30 years. The balance of the loan for the DPA is due.  No interest has accrued as the interest rate is 0%.

Keep in mind, if the loan amount for the first mortgage $200,000, then the maximum loan amount for Home Advantage DPA second mortgage is $8,000.  There is no interest accruing so the beginning balance is the same as the ending balance – assuming the homeowner opts to not make payments for thirty years.

In my opinion, it’s a pretty sweet deal.

This program is self funded and intended to help promote home-ownership in our state. You can only use the Home Advantage second mortgage in conjunction with a Home Advantage first mortgage.

If you’re interested in this or any of the programs available with the Washington State Housing Finance Commission, you will need to attend a Commission sponsored home buyer education class. If you’d like to attend one where I’m one of the instructors, click here.  PS: I am a Commission trained Loan Officer and can also help you with their mortgage programs as your Loan Officer. Please contact me if you’re interested in getting preapproved.

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