Best Practices
Down Payment Assistance Program Administration
In consultation with an advisory group of city and county officials, lenders, Realtors® and housing nonprofits, the Minnesota Homeownership Center is proud to unveil a slate of down payment assistance (DPA) program administration best practices.
The goal is to increase consumer access and improve outcomes by facilitating standardization and transparency. Streamlining the down payment assistance delivery system will ensure that funding is easily accessible, sufficient enough to have an impact, and efficiently targeted toward those facing the greatest barriers to homeownership. These practices will enable more successful purchase transactions and help to reduce Minnesota’s racial homeownership gap – one of the worst such gaps in the country.
Criteria
- Eligible Homebuyers
- Amount of Assistance
- Repayment
- Administrative Fees Paid by Homebuyer
- Re-Subordination
- Homebuyer Education and Advising
- Homebuyer Contribution
- Eligible Properties
- First Mortgage
- Layering
- Fund Reservation
- Underwriting and Closing
Important Definitions
The list below includes standards for each criteria, and, when applicable, additional practices designed to further advance racial homeownership equity.
- Standards: These are the ‘must haves’ for a program to be recognized as meeting the Best Practices.
- Advancing Racial Equity: These additional practices that go beyond the standards, and that will help to advance racial homeownership equity even further.
Learn about Adopting or Endorsing the Best Practices Download a PDF of the Best PracticesView our Informational Webinars on Best Practices Topics
Eligible Homebuyers
Standards
- First-time homebuyer
- Maximum borrower income ≤ 100% of Area Median Income
- Must occupy home as primary residence
- ITINs (Individual Taxpayer Identification Numbers) accepted regardless of immigration status
Advancing Racial Equity
Utilize additional targeting:
- First-Generation Homebuyer (allow self-attestation)
- Special Purpose Credit Program (allows eligibility to be limited to an economically disadvantaged class of persons)
Amount of Assistance
Standards
- At least 3% of the county median home price (frequency of adjustment correlates to market fluctuation)
- Can be used for down payment and closing costs, including prepays and principal reduction
Advancing Racial Equity
- Target programs and offer higher assistance amounts to increase access and affordability
Repayment
Standards
The following options are allowable:
- Non-amortizing second lien repayable at sale, refi or maturity of first position mortgage
- Forgiven on a pro rata basis or in full, after continuous owner-occupancy that is less than or equal to the term of the first mortgage
- Amortizing second lien with an interest rate equal to or less than the first mortgage rate, and a repayable term equal to or less than the term of the first mortgage
For all options, if the combined Unpaid Principal Balance (UPB) is below the sales price or appraised value at repayment or in the event of a financial or personal hardship, the balance is forgiven.
Advancing Racial Equity
- Target programs and extend forgivable repayment terms for all or a portion of the assistance in order to support wealth creation
Administrative Fees Paid by Homebuyer
Standards
- Borrower fees not included unless there are unpaid administration costs
- To cover administration costs, a flat fee, not to exceed 3% – paid from DPA proceeds if allowable
Re-Subordination
Standards
- Allowable if in the best interest of the borrower and results in a lower interest rate and/or payment OR prompted by a life event such as death or divorce
- Cash out restricted to home improvement or repairs
Homebuyer Education and Advising
Standards
- HUD approved Homebuyer Education required and must be completed before purchase agreement execution
- Borrower purchasing a 2- to 4-unit property also must complete owner-occupant landlord training
Homebuyer Contribution
Standards
- Borrower not required to contribute more funds than required by first mortgage
Eligible Properties
Standards
- 1-4 unit detached plus townhomes, condominiums, co-ops and manufactured homes titled as real property
- Shared equity, community land trusts and other resale restricted properties
First Mortgage
Standards
Fixed rate, fully amortizing first mortgage loan that meets CFPB “Qualified Mortgage” definition or is originated in compliance with the nonprofit exemption to the Ability to Pay rule, including:
- GSE fixed-rate products including high balance loans, and government loans from FHA including 203k, USDA, VA and HUD 184
- HFA fixed-rate products and fixed-rate portfolio products offered by CRA depositories or credit unions
- Sharia-compliant products that meet above standards
Contract for Deed is only allowable if administered by an established nonprofit housing organization providing ongoing support and housing counseling
Layering
Standards
- Can be stacked and layered with other down payment assistance programs
- Allow for any lien position and subordinated to the first mortgage
Fund Reservation
Standards
- Available to borrower who is preapproved for a first mortgage and has completed homebuyer education (not contingent on the borrower executing a purchase agreement)
- Can be reserved for a minimum of 60 days and allowing at least one extension equal to the original the reservation period (once a purchase agreement has been executed, a minimum of 60 days allowed for closing)
- New construction allows a reservation period of at least 180 days
Underwriting and Closing
Standards
- Same as first mortgage