Home in 5 Closing Cost Alternative

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The Arizona Home in 5 program is an outstanding down payment and assistance program.  Arizona home-buyers can utilize this program in order to receive a grant – free money!  The Home in 5 grant money can be used to pay for a borrower’s down payment and/or closing costs.  Only borrowers using an Arizona USDA, FHA or VA home loan can take advantage of the Home in 5 grant money.  Learn more about Home in 5 on our website.

Who Qualifies for Home in 5?

Home in 5 can be used with a USDA, FHA or VA mortgage, but it has unique loan guidelines.  A borrower must meet the following (which are only a few of the Home in 5 program’s guidelines):

  1. 640 minimum credit score
  2. Max debt income ratio of 45%

Each of these guidelines are a bit more strict than core USDA, FHA or VA guidelines.  Someone may qualify for a USDA, FHA or VA loan but might not qualify for the Home in 5 program.  What does someone in that position do?

An Alternative to Home in 5

Home in 5 typically gives Arizona buyers enough funds for closing costs or the down payment on an FHA loan.  However, the Home in 5 loan interest rate is not always comparable to rates on USDA, FHA or VA loans.  When a borrower uses the Home in 5 program in conjunction with a USDA, FHA or VA loan the interest rate is not based on current market rates.  Therefore, sometimes the interest rate on a Home in 5 loan is higher than standard non-Home in 5 USDA, FHA or VA loans.

For example, we recently had a borrower that would have been at 4.75% on a Home in 5/FHA ,however , a traditional FHA loan was at 4.25%.  Due to a debt to income ratio over 45%, this borrower did not qualify for Home in 5.  Bummer right?  Not exactly.  By increasing her traditional FHA mortgage rate up from the 4.25% to 4.75% we were able to “premium price” her loan.  This means that by increasing her rate, we generated a lender credit sufficient enough to pay for her closing costs – no Home in 5 needed!  The credit we generated at 4.75% was $200 less than what Home in 5 had to offer.  She is also at the same rate as she would have been had she been able to use Home in 5.

When Home in 5 Doesn’t Work – Premium Price

By premium pricing her loan we were still able to achieve the same result as the Home in 5 program.   A lender credit can only be applied to closing costs, NOT toward a down payment.  Home in 5 funds can be applied to both down payment and/or closing costs.  Also, the example listed above took in to account that traditional FHA rates were lower than Home in 5.  This discrepancy is completely market dependent.  Sometimes  Home in 5 interest rates are comparable or even lower than a traditional FHA.

By Jeremy House

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