MLO DPA Resources

Down Payment Assistance programs come in several distinct structures. Understanding what each term means is critical before presenting any program to a client — the structure affects their long-term obligations, the loan's lien position, and how the assistance is ultimately resolved.

Grant

A grant is a gift of funds that does not need to be repaid. There are no strings attached once the buyer closes. Grants are typically offered at a set dollar amount or a percentage of the loan amount and are funded by state housing agencies, local governments, or non-profit organizations. These are the most favorable type of assistance for the borrower.

Forgivable Loan

A forgivable loan (sometimes called a "soft second") is provided as a loan but is gradually forgiven over a set period — often 3 to 10 years — as long as the borrower continues to occupy the home as their primary residence. If the homeowner sells, refinances, or moves out before the forgiveness period ends, the remaining unforgiven balance may become due. Always check the forgiveness timeline and the conditions that trigger repayment.

Deferred-Payment Loan

A deferred loan requires repayment, but no monthly payments are due. Repayment is triggered by a future event — typically the sale of the home, a refinance, or the payoff of the first mortgage. The borrower owes the original amount (and sometimes accrued interest) when one of these events occurs. Because there are no monthly payments, debt-to-income calculations may still be impacted depending on the program guidelines.

Repayable Second Mortgage

Some DPA programs are structured as a traditional second mortgage with a monthly payment. The borrower receives the down payment funds upfront but must make payments on the second lien in addition to their first mortgage. This directly affects the borrower's monthly obligations and must be factored into all DTI calculations.

Matched Savings Program (IDA)

Individual Development Account (IDA) programs match funds that a borrower saves on their own over a specified period. For every dollar saved, the program may contribute a matching amount — often at a 2:1 or 3:1 ratio. These programs usually require enrollment and completion of financial literacy courses.

Key Lien Position Terms

• First Lien: The primary mortgage. DPA can sometimes be structured as a first lien in combination programs.
• Second Lien: DPA funds placed as a subordinate lien behind the first mortgage. Common with forgivable loans and deferred seconds.
• Subordination: When a second lien agrees to remain behind a new first mortgage upon refinance. Not all DPA providers allow this — always verify before promising a client they can refinance later.

One of the most common mistakes MLOs make with DPA programs is assuming income is calculated the same way as it is for the mortgage qualification. It is not. DPA programs typically use a household income model rather than the borrower-only income used in mortgage underwriting, which can disqualify clients who otherwise appear eligible.

Traditional Mortgage Income (Qualifying Income)

For the mortgage itself, income is calculated based on the borrower(s) on the loan only. It includes wage income, self-employment income, Social Security, pension, rental income, and other documented sources. The underwriter verifies stability, history, and likelihood to continue. Non-borrowing household members are not included.

DPA Program Income (Household Income)

Most DPA programs count the income of all adults living in the household — whether or not they are on the loan. This means a non-borrowing spouse, adult child, or roommate may push the household income over the program's limit even if the borrower qualifies on their own for the mortgage. Always ask: "Who else lives in the home and do they earn income?"

Factor	Mortgage Qualifying Income	DPA Program Income
Whose income is counted	Borrower(s) on the loan only	All adults in the household
Gross vs. net	Gross (before tax)	Varies — gross or adjusted gross
Self-employment	2-year average (Schedule C/K-1)	May use current or projected income
Part-time / seasonal	2-year history typically required	May count current rate without history
Overtime / bonuses	2-year average, likelihood to continue	May be fully counted or excluded
Non-borrowing spouse	Not included	Often included

Area Median Income (AMI)

Most DPA programs set their income limits as a percentage of the Area Median Income (AMI) for the county or metropolitan area where the property is located. Common thresholds are 80%, 100%, or 120% AMI. AMI figures are updated annually by HUD, so always check current limits — especially for programs you haven't used recently. A client who qualified six months ago may not qualify today if AMI limits have shifted.

Practical Tips

• Run household income totals before discussing DPA eligibility with a client.
• Confirm which AMI table applies — county-level and metro-level figures can differ.
• Ask about all household members at intake, not just the borrowers.
• Check whether the program uses gross, adjusted gross, or net income — and verify the definition in the program guidelines.

Each DPA program has its own set of eligibility requirements beyond income. Many MLOs are caught off guard by non-income qualifiers that can disqualify a client late in the process. Review the checklist below for every program before making any promises.

Homebuyer Education / HUD Counseling

Many DPA programs require completion of a HUD-approved homebuyer education course or one-on-one housing counseling session before funds can be issued. This requirement is non-negotiable and can take days or weeks to fulfill. Identify it at intake and get the client enrolled immediately. Some programs accept online courses (e.g., Framework, eHome America), while others require in-person sessions — verify which format the program accepts.

Credit Score Requirements

DPA programs typically have their own minimum credit score thresholds, which may be higher or lower than the underlying mortgage product's requirement. For example, a borrower might qualify for a 580-score FHA loan, but the DPA layered on top may require a 620 or 640. Always check the DPA program's minimum score separately from the first mortgage requirement.

First-Time Homebuyer Status

Many programs restrict eligibility to first-time homebuyers, generally defined as someone who has not owned a primary residence in the past 3 years. However, some programs — particularly those targeting specific zip codes, veterans, or workforce categories — waive this requirement. Do not assume a repeat buyer is ineligible without verifying the program definition.

Property Eligibility

• Most programs limit eligible property types to single-family homes, condos, and sometimes townhomes. 2–4 unit properties are frequently excluded.
• New construction may be treated differently — some programs allow it with conditions, others do not.
• Geographic restrictions are common — programs are often limited to specific counties, zip codes, or census tracts. Confirm the subject property address is in an eligible area.
• Sales price limits may apply — check the program's maximum purchase price against the client's target range.

When to Apply for DPA Relative to the Mortgage Process

Timing is one of the most overlooked aspects of DPA transactions. The sequence matters:

• Before pre-approval: Identify eligible programs and confirm the client meets income, credit, and property criteria.
• At application: Submit the DPA reservation or application simultaneously with the mortgage application — many programs reserve funds on a first-come, first-served basis and funding can run out.
• During processing: Confirm homebuyer education is completed before the DPA provider's deadline (often before underwriting is submitted).
• At closing: DPA funds must be coordinated with the closing agent. Some programs wire directly; others send a check or require a specific closing package. Confirm the disbursement method with the program administrator well in advance.

Occupancy & Residency Requirements

DPA programs are universally for primary residences only. Most also require the borrower to maintain occupancy for a minimum period — especially for forgivable loans. Investment properties and second homes are never eligible.

Debt-to-Income (DTI) Limits

Some programs layer additional DTI restrictions on top of the first mortgage guidelines. A program may cap front-end DTI at 28% or back-end DTI at 45%, even if the underlying FHA or conventional product allows higher ratios. Always calculate DTI with both sets of guidelines in mind.

The following is a step-by-step overview of how a typical DPA transaction is handled on behalf of a client — from initial intake through closing. Each step reflects common best practices; specific program requirements may vary.

1. Initial Client Intake & Discovery
   Gather the full household profile: all occupants and their income, employment status, credit score range, and prior homeownership history. Ask specifically about outstanding student loans, child support, and any recent derogatory credit. This information is needed to screen programs before running formal credit.
2. Program Research & Screening
   Use your state HFA's program portal, Down Payment Connect, or other DPA search tools to identify programs available in the subject property's county. Filter by income limit (using household income), property type, credit score minimums, and first-time buyer requirements. Narrow the list to 2–3 viable options.
3. Pre-Approval Preparation
   Pull credit and run an AUS using the eligible first mortgage product (FHA, Conventional, USDA, or VA) that pairs with the DPA program. Confirm the findings support eligibility. Calculate DTI with the DPA second lien payment included if it has a monthly payment requirement.
4. DPA Eligibility Confirmation
   Verify all program-specific requirements are met: income is within AMI limits, credit score meets the DPA threshold, property address is in an eligible area, and the sales price is within the program cap. Document this verification before issuing a pre-approval that includes DPA.
5. Client Education & Counseling Enrollment
   Explain the DPA program structure to the client clearly — especially if it is a forgivable loan or deferred second. Ensure they understand the repayment triggers. Immediately enroll them in the required homebuyer education course if one is mandated. Do not wait until after a contract is ratified.
6. Mortgage Application & DPA Reservation
   Submit the mortgage application and simultaneously reserve or apply for DPA funds with the program administrator. Many programs are funded on a first-come, first-served basis — a delay of even a few days can mean the difference between available and depleted funds.
7. Processing & DPA File Assembly
   Coordinate with the DPA provider's requirements for their underwriting package. This often includes: a copy of the 1003, income documentation, homebuyer education certificate, the executed purchase contract, and a commitment letter from the first mortgage lender.
8. Dual Underwriting
   The file will go through two approval processes: first mortgage underwriting (Fannie/Freddie/FHA/USDA/VA) and DPA program approval. Timelines can differ. Proactively manage both pipelines and set expectations with the client and realtor about the additional time DPA transactions can require.
9. Closing Coordination
   Confirm with the DPA program administrator how funds will be disbursed at closing — wire, check, or direct payment to the title company. Provide the closing agent with the DPA commitment letter and any closing instructions from the program. Verify the HUD/CD reflects the DPA funds correctly.
10. Post-Closing Compliance
    Some programs require the loan servicer or borrower to submit annual certifications of owner-occupancy during the forgiveness period. Inform the client of any ongoing obligations after closing so they are not surprised. Document what was communicated for your records.