For undocumented immigrants who arrived in the United States as children, the Deferred Action for Childhood Arrivals (DACA) program allows them to continue living and working in the country. They are called “dreamers” because they benefit from the DREAM Act — Development, Relief, and Education for Alien Minors.
As adults, dreamers are looking to buy homes for themselves or even invest in properties. But what can they do when they don’t have all the money upfront to buy a property? Thankfully, there are several home loan options available to dreamers. Use this complete guide to understand how you can finance a house on your own.
What Are the Available DACA Home Loans?
If you’re a dreamer and looking to buy a property, you need to know all your loan options before you sign anything. Discover the most popular choices for DACA home loans here:
These are standard, private lender loans. These used to be the only option for dreamers, and requirements vary by lender.
Also known as Fannie Mae loans, these have a higher credit score requirement than most loans and require a higher down payment.
These are offered by the Federal Housing Administration (FHA). They offer competitive rates, particularly to those who might not be eligible for conventional loans because of lower credit scores or a high debt to income ratio. While the rules for DACA eligibility for these rules were previously under question, they’ve recently been codified to support FHA loans for dreamers.
Where to Find DACA Lenders
As of 2021, the Department of Housing and Urban Development has moved to make it easier for DACA recipients to get mortgages from lenders. However, it’s still best to work with friendly lenders with a history of working with dreamers. As recently as 2019, dreamers were facing discrimination from lenders, so the changes are recent. If you want to learn more about working with accepting lenders, contact the Associates Home Loan team.
Eligibility Requirements for FHA Loans
To qualify for FHA DACA home loans, here are some requirements you’ll need to meet:
- Social security number
- Current and previously expired EAD cards
- 580 credit score
- 3.5% down payment
What Properties Can DACA Recipients Buy with FHA Loans?
DACA home loans aren’t limited to primary residences, unlike other programs. If you’re looking to purchase a multi-unit property, an investment property, or even a second home, you can use these mortgage types to do it. Just note that you can’t have two FHA loans simultaneously.
The Benefits of an FHA Loan
As you explore your financing options, you’ll need to know which will best serve your financial present and which will help you meet your goals. FHA loans are popular for a reason and offer many benefits to those who take advantage of them. Here are some of the top benefits of borrowing from the Federal Housing Administration.
Lower Credit Score Needed to Qualify
If you’ve had a less than spotless financial past and your credit score reflects that, you may still be able to borrow money from the FHA. The credit score requirements for this borrowing method are much lower than other options. For their standard 3.5% down payment, you only need a credit score of 580.
Don’t have that? The program also offers mortgages with a lower credit score requirement. However, you will need to pay a higher down payment of 10%. If you have cash but are having trouble finding a lender to work with you because of your credit score, this option is ideal.
Premiums Aren’t Affected by Credit Scores
As long as you meet the credit scores, you won’t pay much more than you would if you had a higher credit score. Credit scores are used for determining your eligibility rather than the premiums you’ll pay.
Higher Debt to Income Ratios Allowed
Another barrier to getting a mortgage for many is a higher amount of debt in the debt to income ratio. Thankfully, this doesn’t have to stop you from buying the property you want. You can still qualify with a poor ratio for lending from the FHA.
The Drawbacks of an FHA Loan
All options for borrowing money come with disadvantages as well, and the Federal Housing Administration’s terms are no exception. Before you agree to borrow money from the administration, consider these drawbacks.
Mortgage Insurance Premiums
When you borrow money from the FHA, there are mortgage insurance premiums (MIP) attached. While the interest rates from the Federal Housing Administration are competitive, these premiums will raise the cost to you and must be considered as part of the price.
This premium will cost 1.75% upfront (add this to your down payment). After that, you’ll pay 0.85% of the loan balance monthly.
You may be able to get rid of this premium, but it often requires refinancing.
Higher Down Payment than Conventional Loans
As you’re weighing your options, consider what you can pay upfront. If you don’t have much to offer upfront, a conventional loan may not only be preferable but necessary as well. Whereas conventional loans only require 3% minimum down payments, FHA loans require 3.5%.
If you’re looking to take advantage of this lending option, you’ll need to keep the limits in mind while shopping the market.
The FHA has strict lending limits on any support provided. The limits do change over the years to keep up with inflation, so always check for the most recent limits.
Limits also vary based on location as certain states have higher housing prices and special exceptions to the maximum amount available.
How to Apply for a DACA Home Loan
If you’re ready to apply for DACA home loans, you can visit the FHA website to learn more about credentials. Once you’ve guaranteed that you’re all set, you can contact a lender like Associate Home Loans. They will apply for you with all the required documents to verify income, credit score, employment, and savings.
Have a specific question not covered in this guide? There’s a handy FAQ page on the website. You can also contact the agency directly via email at [email protected].
Finance Your Next Property As a Dreamer with an FHA Loan
Before you settle for the first loan option that presents itself to you, use this guide to explore your options and get the best deal. Depending on your down payment, credit score, and the amount you need to be lent, certain programs will be a better option than others.
Want to learn even more about how you can get the money you need for the property you have your eyes on? Contact the team at Associates Home Loan today about DACA home loans.