Dreamers can now be approved for FHA home loans
"Dreamers" – US citizens with DACA status – have just increased their dreams of home ownership enormously. The Federal Housing Administration (FHA) announced that it has changed its DACA home loan policy.
As of that day, the FHA is ready to approve home loans for DACA recipients. This means they have access to the FHA low down payment mortgage program so popular with US home buyers.
This new rule opens up the realm of mortgage options for Dreamers and gives them access to a wider range of affordable, accessible ways to own home.
Review Your Home Loan Options (Jan 25, 2021)
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The FHA's New Attitude on DACA Home Loans
In a statement, US Senator Sherrod Brown (D-OH), who is expected to chair the Senate Committee on Banking, Housing and Urban Affairs, summarized what the change means: "DACA recipients are fully eligible for FHA loans . "
The FHA's new policy should make it easier for many dreamers to buy real estate in the US.
You might assume that this change was one of the first acts of the Biden administration. But in fact it was one of the last of the outgoing Trump administration.
Previous FHA rules for DACA recipients
The official policy before January 19 (changed the day before it was announced) was that DACA beneficiaries were not eligible for FHA loans.
According to the FHA Single Family Housing Handbook, "Non-US residents who are not legally resident in the US are not eligible for FHA-insured mortgages."
And as of Jan. 19, those classified under the DACA (Deferred Action for Childhood Arrivals) program were not considered legitimate residents, according to the HUD (the agency that manages the FHA).
FHA loans are one of the easiest mortgage programs to qualify and have milder guidelines than many other home loans.
For many dreamers, reversing this policy is a significant change.
New FHA rules for dreamers
Of course, the new rule only balances the competitive conditions for DACA recipients.
Applicants must continue to follow the same eligibility guidelines as any other legitimate resident in order to receive approval for their FHA loan. More on that in a minute.
Note that even before the change, dreamers were not completely excluded from home ownership.
You have always been eligible for some conventional loans, subject to lender guidelines, including compliant loans offered by Fannie Mae.
Review Your Home Loan Options (Jan 25, 2021)
FHA loan services
What difference does having access to FHA loans make when Dreamers could get mortgage loans all along?
Well, they'll be able to access the same benefits that have attracted more than 8 million borrowers who currently have single-family mortgages that are backed by the FHA.
Some of the greatest advantages of an FHA loan are:
Small minimum deposit – Only 3.5% of the purchase price is required
Lower credit score – Lenders approve applicants with FICO scores as low as 580, down 3.5%. You could even get a loan if your credit is between 500 and 579 if you can pay a 10% down payment (although it will be harder to find a lender).
More flexibility with existing debts – FHA loans usually allow higher rates Debt-Income Ratios (DTIs) than other types of mortgage. So if you have a lot of existing debt, it may be easier to qualify
No wonder FHA loans are popular with first-time buyers and those who have had tough financial problems. And why they are likely to address as DACA home loans.
Just one thing. If you're struggling to get a 3.5% down payment and cash for closing costs, find out about the grants and loans (sometimes forgivable loans) available to home buyers everywhere.
These down payment support programs are available in every state and are often aimed at first and lower income home buyers who need additional upfront help with their housing costs.
Disadvantages of FHA Loans
With all of these advantages, there is inevitably a disadvantage. FHA loans generally have higher borrowing costs than many other types of mortgage loan.
It's not that FHA mortgage rates are higher. They're actually pretty competitive.
Rather, the additional cost comes from the FHA loan mortgage insurance (MIP) premiums.
MIP adds 1.75% upfront cost to your loan amount (most home buyers roll this into their mortgage balance). In addition, there are annual costs of 0.85% of the loan balance (paid monthly).
Traditional loans also charge mortgage insurance if you save less than 20%. However, this can be canceled later. In comparison, on an FHA loan, you need to refinance to get rid of MIP.
Mortgage insurance is not a bad thing when it comes to helping you buy a home. However, if you qualify for both an FHA loan and a conventional loan, you need to compare the cost of mortgage insurance for each loan so that you understand which long-term costs are higher.
Which DACA recipients are eligible for an FHA mortgage?
If you are a dreamer, you may find FHA loans attractive. And you will be curious to see whether you are personally entitled.
Quoting excerpts from the announcement here, the FHA says that borrowers will need:
A valid Social Security Number (SSN), excluding those employed by the World Bank, a foreign embassy or equivalent employer identified by the Department of Housing and Urban Development (HUD). Eligibility to work in the USA, as stated in the work permit The document issued by USCISTo meets the same requirements, terms and conditions as that for US citizens
By the third point, these requirements include a credit score of at least 580; a deposit of at least 3.5%; and a debt to income ratio of less than 50%.
Your lender to whom you are applying will require documents to verify credit, income, savings and employment when you submit your loan application.
You also need to ensure that your loan amount (home price minus down payment) is within the FHA loan limits for your area.
FHA also requires that the property be your primary residence, which means you need to plan to live there all day.
Work permit document
This work permit document is clearly central to the success of your application. But let's say yours expires within a year.
That should not be a problem. The FHA says:
“If the work permit expires within a year and there is a history of residency renewals, the lender can be confident that the continuation will be granted. If there are no previous renewals, the lender must use information from USCIS to determine the likelihood of renewal. "
In other words, if your status has been renewed at least once, you should be fine. It is assumed that it will be so again.
If it hasn't been renewed, the lender will check with the US Citizenship and Immigration Services (USCIS) to determine the likelihood of renewal.
Check Your FHA Loan Eligibility (Jan 25, 2021)
Other home loan options for dreamers
We mentioned earlier that some "conventional loan" (ie, non-government sponsored loan) lenders are considering applications from Dreamers.
Fannie Mae's compliant loans are also available to those under the DACA program.
Most mortgage lenders offer loans backed by Fannie Mae. This includes a variety of options such as:
The 3% down Conventional 97 loan
The 3% down HomeReady Loans for low income buyers
Loans Less Than 20% Less WITH Mortgage Insurance (PMI)
Loans with 20% deposit or more and without mortgage insurance
For Freddie Mac (the other agency that supports “compliant” home loans) the situation is less clear.
Freddie's guide uses language similar to the old FHA wording. And those lacking “legal residence” status were ineligible. A search of the website on the day this was posted returned no hits for "DACA" or related terms.
But Freddie may well update or refine his DACA guidelines soon as soon as the FHA does – and now that a new, more dreamer-friendly administration is in place.
And it wouldn't be a surprise if other organizations (including the VA and USDA) refined their guidelines in similar ways in the coming weeks to reflect these factors.
If you are a DACA recipient in the home loan market for the coming year, keep an eye on the news and do regular Google searches of these agencies to see if any new loan programs have been added to your list of options.
Explore Your Home Loan Options (Jan 25, 2021)
Which DACA Home Loans Are Best For You?
On average, DACA recipients are younger than the overall US population because they had to be under 31 years of age As of June 15, 2012. That being said, however, generalizing about them can be a mistake.
Just like other American residents, some dreamers will have excellent credit scores and others will have bad credit scores. Some will save a lot, some won't. And some will be laden with student loans and other debts while others owe nothing.
A DACA borrower must therefore seek the type of loan that best suits their personal financial situation – just like everyone else.
Those who are most attractive to lenders (high credit, 20% down payment, and small debt) are likely to find that a traditional loan is the best choice.
Those with low scores, 3.5% down payment, and lots of debt may need to take out FHA loans.
And those between the two might find that Fannie Mae has her best deals on. Better still, Fannie requires a minimum deposit of only 3%.
Shop for loan options and mortgage rates
Regardless of the type of loan you choose, be sure to take out loans from a private lender. The mortgage rates and total offers that are offered to you are likely to vary widely from lender to lender.
So make sure to compare your mortgage, get competitive quotes from multiple lenders and compare them side by side.
This is the best way to find a low interest rate and save money on your home loan no matter which program you choose.
Check your new plan (January 25, 2021)