First Time Home Buyers
A follow-up to Al-info’s post…Al-info, here is what I would consider on the IHDA Down Payment Assistance (DPA) program: At roughly $160,000 or a +/- $157,000 loan, how much do I gain or lose per year on the basis of the DPA?
I’m disregarding other important payment items like mortgage insurance and property taxes right now. What we need to compare is the cost of the higher interest rate versus the value of the down payment assistance.
The DPA is a second mortgage that is “forgiven” 1/120th at a time, monthly, for ten years. The rate also increases from 4.75% to 5.25%. Higher rates have higher payments, but they also have more interest per year.I am using these assumptions:
| Purchase Price | $ 160,000 |
| Down Payment | 3.50% |
| Base Loan | $ 154,400 |
| Up-front MIP | 1.75% |
| Total Loan | $ 157,102 |
| Max DPA | $ 4,800.00 |
Here is the amount of cumulative interest paid through x years for the first 10 years:
| Interest, thru Yr: | 1 | 2 | 3 | 4 | 5 | 10 |
| No DPA | $ 7,410 | $ 14,702 | $ 21,871 | $ 28,911 | $ 35,815 | $ 68,057 |
| DPA | $ 8,195 | $ 16,271 | $ 24,221 | $ 32,039 | $ 39,718 | $ 75,743 |
| Extra Interest | $ 785 | $ 1,569 | $ 2,350 | $ 3,129 | $ 3,903 | $ 7,686 |
Here’s the cumulative value of the down payment assistance loan being forgiven:
| DPA, thru Yr: | 1 | 2 | 3 | 4 | 5 | 10 |
| Amount Forgiven | $ 480.00 | $ 960.00 | $ 1,440.00 | $ 1,920.00 | $ 2,400.00 | $ 4,800.00 |
Basically, two groups should do the down payment assistance:
- If you cannot buy a home without the DPA, but believe this is a good time to buy a home, do that program.
- If refusing the DPA means that you’ll have very little reserves or leftover money after closing, you may still want to do the DPA. It “costs” about $900 over the first three years to keep an additional $4,800 in your pocket at closing.
If you have 6 months worth of mortgage, tax, insurance and other monthly reserves in cash after making a down payment, I personally wouldn’t do the DPA program, but I do like their low rate on the Home Start.
Hope this helps. Now get back to Trulia before I violate their terms of service.
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