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DOWN PAYMENT ASSISTANCE LOANS
ADFA is ready to offer a down payment assistance loan. The Down Payment Assistance choice will be available on the Internet Reservation System for ADFA’s approved lenders. The Down Payment Assistance (DPA) Loan is a 10-year amortizing mortgage.
ADFA does not allow seller funded down payment assistance from Third party Non-profit Gift Programs in the “HomeToOwn” Program.
A. ADFA’s Down Payment Assistance Loan (DPA)
ADFA is pleased to be able to provide down payment and closing cost assistance in the form of a Down Payment Assistance Loan secured by a second mortgage (“DPA Loan”) to those who qualify for it. The amount of assistance available will be communicated separately to all lenders through the Program Brochure. All DPA loans must be issued in conjunction with a Single Family Program Mortgage Loan. Please note that the funds are a loan.
The proceeds of the DPA loan can only be used for certain items. Of course, funds may be used for an Eligible Borrower’s down payment and closing costs. Cash back to the borrowers is allowed for expenses “paid outside of closing” (POC). In order for the funds to be replenished, they must be designated as being paid up front by the borrower and be in reflected as such on the HUD-1 Settlement Statement. This applies only to the ADFA hard second mortgage. It does not apply to ADDI loans. It is also important to calculate the loan amounts accurately, because in most cases, the reduction of Mortgage Loan principal costs the Eligible Borrower extra money! Origination fees and other fees based on a percentage of the Mortgage Loan amount would have already been incurred. Reducing the principal balance of the Mortgage Loan does not allow the Eligible Borrower to recoup any of these fees, nor does it reduce the monthly payment amount. So do everybody a favor and keep all loan amounts accurate!
The DPA Loan term is based on a 10-year amortization. It is due on sale, transfer, other disposition of the property (including any involuntary transfer by or as a result of foreclosure or judicial sale or operation of law), refinance or other satisfaction of the Mortgage Loan.
In the event the Mortgage Note Holder and the Servicer, in their sole and absolute discretion, after a loss mitigation analysis, find that a catastrophic event, including but not limited to Borrower’s death or extended illness, or the extended illness of a close family member who depends primarily on the borrower for support, has occurred which submitted substantially and permanently impairs their ability to repay second mortgage note and required them to sell the Property for an amount less than the Mortgage note, that portion of the lien of second mortgage note which cannot be satisfied from the proceeds of such sale shall be released.
The interest rate on DPA loans may be changed by the Authority at any time. Please refer to the ADFA website for the current rate.
Here are some other requirements for down payment assistance loans:
- Homebuyer Education: All borrowers, with the exception of co-signors, are required to complete an eight (8) hour homebuyer education course taught by an ADFA- approved homebuyer counseling agency. A copy of the certificate that is issued at the end of the course must be included in the mortgage file. All persons that will be signing the mortgage are required to take the course! Spouses not on loan are not required to take the course.
- Minimum Cash Investment: There is no longer a minimum cash investment required from borrowers own funds when a down payment assistance program is used in conjunction with our HomeToOwn loan.
- Minimum Cumulative Loan to Value (CLTV):
- FHA: The sum of all financing may not exceed 100% of the Acquisition Cost plus any prepaid expenses.
- VA: The sum of all financing may not exceed 100% of the reasonable value of the property established by VA plus any closing costs and prepaids.
- Conventional: The sum of all financing cannot exceed 105% of the lower of either purchase price or appraised value.
- USDARD: Sum of financing cannot exceed 100% of appraised value plus the Rural Development Fee.
4. Allowable Fees to Participate Mortgage Lender. No commitment or origination fee will be charged for the DPA loan. The Mortgage Lender may collect and retain a $50 application fee for each DPA loan.
5. Closing Requirements:
- DPA loan must meet federal truth-in-lending (TIL) disclosure requirements
- (both early and final TIL required).
- Second mortgage must be recorded in the official public records of the
- County Recorder’s Office such that it constitutes a valid second lien upon the property.
- Hazard insurance policy must show the mortgage lender of ADFA and/or its assigns as an insured second mortgagee.
- Title insurance policy must reflect the second mortgage as a valid lien against the property subordinate to the mortgage.
- Mortgage lender advances the funds and is reimbursed at the purchase by the Master Servicer.
- The DPA loan will be assigned to Arkansas Development Finance Authority.
6. Servicing Information
- DPA loan will be serviced by the Master Servicer.
- A monthly payment statement will be issued and the Eligible Borrower will remit one check to cover both the first and second mortgage loan obligations.
- Assumptions are not allowed.
- A DPA loan administration fee of $150 will be netted at purchase from the DPA loan funds by the Master Servicer.
- There is no prepayment penalty.
- There is no recapture tax provision.
- In the event that he mortgage loan (the “first mortgage”) is determined to be uninsurable on the secondary market, then the originating Mortgage Lender will be obligated to repurchase both the mortgage loan (“first mortgage”) as well as the DPA loan.