sample Home Appraisal Report

Down Payment Assistance Programs

There are quite literally thousands of city and county sponsored assistance programs available to eligible first time home buyers today. Generally speaking, local down payment assistance programs share similar program characteristics:  

1. Assistance funds used in conjunction with purchase money first mortgages must be applied to down payment and, on some programs, closing costs are also allowed. 2. Assistance funds may not be used to pay off revolving or installment debt (credit cards, car loans, etc.), collections, judgements or charged off accounts 3. Cash back to the borrower is strictly prohibited however, in some cases, the borrower’s initial deposit in escrow may be refunded to the borrower after escrow has closed 4. Income limits apply5. Sales price limits apply 6. Geographic restrictions apply 7. Asset limitations (liquid assets) may apply 8. Equity share provisions may or may not apply 9. Interest rates vary and may run as low as 0% on some programs 10. Competing city specific programs and county specific programs (eligible cities) generally may not be combined on any one single purchase transaction (no double-dipping).  The home selected for purchase must be situated within the funding agency’s geographical jurisdiction, city/county border 11. Borrower must be a first time home buyer, that is, one who has not owned real estate as a primary residence within the most recent three years (mobile homes on wheels, time-shares, etc. are not considered primary residences) however, in some cases, exceptions may be made for displaced homemakers, those buying properties in targeted area census tracts, eligible military veterans, etc.  Check program specific guidelines for the categories that qualify for the first time home buyer exception   12. Borrower must be a legal resident or legal resident alien  13. Eligible borrowers must provide full income documentation and qualify using tandem first mortgage financing insured through traditional prime insurers: FHA, VA, USDA-RD, Fannie Mae, Freddie Mac or as authorized by the city or county program administrator.  In this context, sub-prime, Alt A, alt doc or stated income documentation programs are not acceptable    14. Home buyer education requirements vary by program.  This item may not be waived if required according to program-specific underwriting guidelines.  15. Funds are allocated annually or as requested by a city or county housing program administrator.  Funds are subject to depletion at any time depending on consumer and lender demand

If you are a first time home buyer of low to moderate income interested in purchasing an affordable, moderately priced home, there is a good chance you may qualify for any one of a number of down payment and/or closing cost assistance programs.

FIND A LOCAL DOWN PAYMENT ASSISTANCE PROGRAM  There are a number of ways to locate programs and corresponding eligibility requirements.  A good source of information may be obtained through real estate agents, loan officers, family or friends who benefited from same programs.  The most efficient methods I have found so far have been facilitated through internet search engines.   I use a popular search engine (like the one that starts with a “G” and rhymes with “bugle”).   If the internet is not available to you, simply contact your target city’s or target county’s housing department at City Hall.  Utilize Exhibit B located at the end of this chapter to facilitate your search.

PROGRAM AVAILABILITY Most city and county government offices have a Housing Department through which first time home buyer programs are administered.  Some cities however do not offer such programs.  As my daughter Marilyn (a third year student at the University of California Santa Barbara) recently discovered, her post-graduation target city, Beverly Hills, does not offer a first-time homebuyer program.  The City of Los Angeles however, as well as participating cities in Los Angeles county offer first time home buyer programs.  If, after going through the motions suggested below, your target city or target county results come up blank, it is highly likely a program is not currently available.  In these instances, a phone call to the housing department should be made to confirm the availability of a first time home buyer program in their town, if any, and current funding status. 

A.  Enter the following search criteria for your target city or target county:

Example: “City of Smallville Texas” or ”Smallville Texas City Hall” or

“Smallville County” B. 

Once linked to the county or state website, click any one or all of the following possible links: 1)                 Departments, Housing or Redevelopment or Community Redevelopment, First Time Home Buyer Programs

In most cases, specific program eligibility requirements will be posted to the housing agency’s webpage listing the following program details: 1)                 Income Limits, Sales Price Limits, Geographic Restrictions, Miscellaneous borrower requirements, Miscellaneous program requirements

In the rare event program details are not posted, click on the “contact us” link located at the bottom of the web page or call the Housing Department to request current program information via fax, e-mail or regular mail. 

MORTGAGE LENDERS Some housing departments will provide, for the applicant’s convenience, a comprehensive list of mortgage lenders certified and authorized by the program administrator to assist applicants with the initial loan application and conduct preliminary qualifying processes.  Some housing agencies may instruct interested applicants to complete pre-screening (for compliance purposes) through the agency’s housing department first to determine whether the applicant meets program specific eligibility requirements prior to contacting an authorized mortgage lender.

PROGRAM EXCEPTIONS City and county sponsored down payment assistance programs are created to benefit first time home buyers of low to moderate income with limited cash assets.  If, by median area income standards, you are an upper-income applicant, that is, one whose current annualized family income exceeds a program’s low or moderate income limit, you will not likely qualify for that particular program (an exception may be made for target area properties however this exception is program specific and case-by-case).  Also, if you owned real estate as a primary residence within the most recent three years, you will not meet the IRS’ definition of a first-time homebuyer however, in most cases, an exception may be granted for applicants purchasing homes in federally designated “target area census tracts”. 

TARGET AREA EXCEPTIONS A target area census tract is an economically depressed area in need of  economic revitalization.  Target areas are identified by six-digit census tract numbers and may be located using a census tract map or census tract search engine.  Program specific guidelines will spell out under what circumstances exceptions to the first time home buyer rule may be granted and will also list eligible target area census tract areas and/or redevelopment area maps.

PROGRAM UPDATES Income limits, sales price limits and maximum assistance dollars available to each purchase transaction are updated annually (or as changes to area median income and median sales price figures warrant necessary).  It is prudent to verify through  the housing finance agency or authority the accuracy of information reflected on the agency’s website (specifically income limits, sales price limits) and confirm availability of funds.

PROGRAM ELIGIBILITY The housing agency may provide an on-line work sheet to assist prospective buyers in prequalifying for the purpose of determining eligibility with regard to income limits and sales price limits. An eligibility work sheet has also been provided at the end of this chapter – see Exhibit B (available in the full book version located at

Upon locating a workable and fully funded down payment assistance program, the next step in the qualifying process is to obtain formal loan approval through an authorized mortgage lender or authorized mortgage broker.  To this end, applicants should be prepared to provide, at minimum, the following income documentation: 1)                 Most recent paystubs (30 days worth) 2)                 Three years federal tax returns with all schedules 

LOAN APPROVAL AND LOAN CLOSING Borrowers who apply for first time home buyer program funds must pass two important tests. 

First Test:     The primary borrower(s) must satisfy insuring agency (i.e. FHA, VA, USDA/RD-GRH, Fannie Mae, or Freddie Mac, whichever applies) credit and debt qualifying requirements.  This part of the first test is performed exclusively by the lender.  City and county housing departments do not staff mortgage loan underwriters – they rely on the expertise of participating lenders to competently underwrite a loan file to insuring agency requirements.

Second Test: The primary borrower(s) must satisfy city or county program specific bond compliance requirements for  A.  Income Limits  B.  Sales Price Limits  C. First Time Home Buyer Status

This part of the second test is generally not performed by the lender.  The city’s or county’s housing department will determine who may review loan files for bond compliance purposes.  Ultimately, one of the following entities must perform a bond compliance review prior to loan funding:  1)     City or county in-house bond compliance department  2)     An authorized independent contractor – bond compliance agent or agency

THE PROCESS Lenders must review all borrower provided documentation, credit reports, credit letters of explanation, verification forms, title, appraisal, etc. and issue a conditional loan approval before a loan may fund and close.  

The sooner borrower specific documentation and all parts of the loan file are  compiled and analyzed, the sooner a lender can issue a conditional loan approval, transmit loan documents and close the transaction. 

In the context of city and/or county funded first time home buyer programs, under most circumstances, the lender does not fund the city’s or county’s subordinate loan.  The city’s or county’s accounting department will cut a check or wire the subordinate loan funds to escrow/title after approving the loan for bond compliance purposes only.    Failure to follow city or county specific procedure in this regard may result in an unsalable loan in the secondary market.  Lenders should be careful to follow correct procedure which varies from one program to the next.  Borrowers should   check with their loan officer for established program protocols in this regard.

RESALE RESTRICTIONS Please note, homes financed in part with city and county down payment assistance funds may have “resale restrictions” recorded against the home.  These restrictions are often written into the deed of trust, mortgage, promissory note or as part of a separate attachment which becomes binding when recorded concurrent with the city’s or county’s trust deed or mortgage.   In most cases, after reviewing a government entity’s loan documents, most lenders will not approve a program if certain resale restrictions apply. 

Generally speaking, some city and county programs include a resale restriction that legally limits future buyers  exclusively to persons of low to moderate income (or other city or county-specific limitations and exclusions) regardless of the circumstances surrounding a sale in foreclosure.  In the event of foreclosure, resale restrictions adversely affect a lender’s ability to freely negotiate and sell the property to the highest bidder at a trustee’s sale. 

The good news is that many city and county department heads recognize the bind that restrictive covenants of this nature unfairly place on foreclosing lenders.  Consequently, many housing agencies either do not include this particular resale restrictive covenant anywhere in their loan documents or, in some cases, any applicable resale restrictive covenants recorded concurrent with the deed may include a provision (out-clause) ensuring that the resale restrictions are terminated and have no further force or effect in the event title is acquired by a lender or insuring agency upon foreclosure.   With that specific language, lenders in foreclosure are thus protected. 

LENDER APPROVAL OF CITY/COUNTY SPONSORED PROGRAMS   Most lenders will require thorough review of city and county generated loan documents consisting of:  1. sample copies of the city’s trust deed or mortgage  2. sample copy of the promissory note  3. program guidelines and  4. any applicable attachments recorded concurrent with the mortgage or trust deed (like the resale restrictive covenant document)

 The review process is typically performed prior to approving a program for use in-house to ensure the program meets the lender’s requirements and to also ensure the program satisfies insuring agency (FHA, VA, Fannie Mae, Freddie Mac, USDA/RD-GRH) requirements.

COMMUNICATION IS KEY  The best advice to prospective first time home buyers in need of down payment and/or closing cost assistance:  get one step ahead of competing applicants by immediately communicating to your loan officer your desire to use a down payment assistance program and, if possible, provide your loan officer with all information accumulated concerning the desired program. 

With advance knowledge, your loan officer may jump start the qualifying process and request reservation of city or county funds on your behalf at the earliest possible opportunity.  For more information on programs created for first time home buyers of low to moderate income, go to for an full version, electronic copy of the reference manual.


About the Author

Esperanza Creeger currently resides in Dallas, TX. A mortgage industry veteran for 21 years and counting, Esperanza’s first original work “First Time Home Buyer’s Guide: Below Market Interest Rate and Down Payment Assistance Programs” is available at Esperanza is currently working on her second original work written for the big screen, “An Akashic Tale”. Contact (469) 438-9659 or write to


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