Chenoa Fund: A Guide to Down Payment Assistance in Texas

Dec 29, 2023

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Originally Posted On: https://chlending.com/blog/f/chenoa-fund-a-guide-to-down-payment-assistance-in-texas

You’ve dreamed about receiving the keys to your very own home for years, and now, you’re ready to make that dream a reality in 2023.

You’re in good company. Many Americans are expected to pursue homeownership in 2023, as the housing market may not be as competitive as in 2022 with its soaring home prices.

But what if you can’t afford the down payment for your future home?

Fortunately, the Chenoa Fund down payment assistance (DPA) program can provide a first-time buyer with the down payment help they need to get into their dream home.

Here’s a rundown of how the Chenoa Fund can help you on your journey to owning a home.

Let’s jump in!

Why Chenoa Fund Down Payment Assistance Is Needed

Many future home buyers in the United States are exploring their DPA options these days due to the rising costs of owning a home.

For instance, interest rates reached their highest levels in 20 years toward the end of 2022. This has made it more expensive to finance a home purchase.

In addition, home prices themselves continue to rise. These prices are expected to keep soaring throughout 2023 because construction is not anticipated to meet the demand for housing. This means larger down payments will be required to secure financing for homes today compared with those even a couple of years ago.

This is where Chenoa Fund DPA comes into play.

The Chenoa Fund DPA is designed to help a homebuyer to obtain a forgivable or low-interest loan to go toward a home down payment. This means they won’t have to save up as much money for their down payment.

A Glimpse at Chenoa Fund DPA

The Chenoa Fund is a Cedar Band Corp. DPA program aimed at helping more creditworthy families to experience the benefits of homeownership.

The Chenoa Fund was created based on the belief that everybody in the United States should be able to access affordable housing. The goal of this fund is to decrease the current competition for apartments and homes for rent. This may ultimately help to reduce the cost of rental housing and therefore make it more readily available for people who cannot benefit from the Chenoa Fund.

The fund is specifically designed to help people who cannot accumulate down payments but still have the credit histories and incomes needed to afford and maintain homes. If you qualify for DPA through the Chenoa Fund, you will receive the DPA you need as a second mortgage.

Requirements for Receiving Chenoa Fund DPA

To obtain Chenoa Fund DPA, you need to be a first-time buyer and also earn a low income or moderate income. In addition, you should be purchasing a home that you plan to use as your primary residence, not a second home.

To be eligible for Chenoa Fund DPA, you should also buy a house within your local area’s home-buying price limits. In addition, you’ll need to use one of today’s approved mortgage programs and work with a legitimate mortgage lender to get down payment help.

Prospective home buyers who qualify for forgivable loans will never have to repay them. These loans are essentially outright cash gifts. If you’re eligible for a low-interest loan, you will have to repay the loan, but the interest rate will be low enough to make paying it back easy.

This is invaluable because even if you can afford your desired home’s monthly payment, this does not mean you have the cash you need to afford the down payment.

Also, let’s say you have a lump sum of money to go toward a down payment. You still may not want to deplete your savings. With Chenoa Fund DPA, you can still maintain a handy reserve fund as you strive to become a homeowner.

Additional Chenoa Fund DPA Qualification Requirements

To take advantage of Chenoa Fund DPA, you must additionally meet minimum credit score requirements. In addition, you have to meet minimum standards for the ratio of your debt to your income.

For instance, your credit score must be at least 600. In addition, the ratio of your debt to your income should be under 50%. Your employment history should also be satisfactory.

With the Chenoa Fund program, you can receive as much as 5% of your home’s purchase price or the home’s appraised value — whichever is lower. This will help you to cover your down payment.

You’ll also receive the customer support you need to guide you through the process of buying a home.

Through this program, you can receive a year and a half of home buyer financial counseling following your purchase as well.

The Chenoa Fund additionally offers minority-targeting initiatives designed to teach underserved communities how to build wealth via sustainable homeownership.

Chenoa Fund Down Payment Assistance Options

When you choose Chenoa Fund DPA, you have a couple of assistance options. The first is a repayable loan, and the second is a forgivable loan.

Repayable Loan

The term of the repayable loan is 10 years, and the interest rate is just a couple of percent higher than your loan interest rate will be.

This fully amortized product’s rate is fixed, so you don’t have to worry about the rate increasing in the future. However, you will have to make monthly payments on the loan as a second mortgage during the 10-year period.

Forgivable Loan

The forgivable loan’s term is 30 years, and the interest rate is 0%. You won’t have to make monthly payments with this option.

However, the loan will essentially become a grant only if you meet certain forgiveness conditions. These conditions depend on your DPA amount.

Forgivable 3.5% DPA

If you receive a loan that covers 3.5% of your home’s price, the loan will be forgivable after you’ve made your first mortgage’s monthly payments on time for 36 consecutive months.

Keep in mind, though, that your forgiveness period will reset if you make a single late payment. The good news is that you have the entire 30-year period to meet this option’s forgiveness conditions.

Also, let’s say you never meet the forgiveness conditions during the 30-year period due to multiple late payments. Your loan may still be forgiven once you reach the loan term’s end.

Still, if you decide to sell the house to someone else or refinance your first mortgage before the loan is forgiven, you’ll need to repay the loan.

Forgivable 5% DPA

If you receive 5% of your home’s price, your loan will be forgiven after you have made 120 payments on your first home mortgage.

However, let’s say one of your mortgage payments is more than 60 days late. Your forgiveness period will be terminated in this situation. However, the loan will maintain its terms of 30 years and its interest rate of 0%, and you still won’t have to worry about monthly payments.

After 30 years, the loan will be forgiven even if you never meet the forgiveness conditions. However, as with the 3.5% DPA option, if you transfer the ownership of your home to another person or refinance prior to receiving loan forgiveness, you will have to repay the loan.

Mortgages You Can Use with DPA

You can use one of several popular approved mortgage program products with Chenoa Fund DPA. These include the following:

FHA loans
USDA loans
VA loans
Conforming loans through Freddie Mac and Fannie Mae

Let’s take a look at what each type of loan program has to offer and the requirements for obtaining these types of home loans.

FHA Loans

If you’re new to the housing market, consider using Chenoa Fund DPA with an FHA loan.

A loan through the United States housing authority, the FHA, is typically the best choice for first-time buyers who do not have a lot of money to invest in a home. Likewise, it’s a good option for a newcomer to the real estate market who has a large amount of debt.

FHA loans are also great options for people who have less-than-stellar credit. That’s because these types of loans are more forgiving of problems with credit than other home loan programs are.

FHA Loan Qualifications

With an FHA loan, you can finance as much as 96.5% of your home’s cost. All you’ll need to come up with is a 3.5% down payment if your credit score is at least 580. However, if your score is anywhere from 500 to 579, you’ll need to come up with a 10% down payment.

Your credit score, however, has to be 600 if you want to be eligible for DPA through the Chenoa Fund.

Also, with an FHA loan, the ratio of your debt to your income should ideally be 50% or less, although your FHA lender could make exceptions. The lender may be able to manually underwrite your loan to stretch the ratio of your debt to your income in certain circumstances.

Note, though, that with this type of loan, you’ll have to pay an upfront insurance premium as well as an annual insurance premium that you’ll pay in monthly installments.

You can finance the upfront part into your loan. This will decrease the amount of money you need to bring to the closing table. However, you will have to pay interest on this money over the course of your loan.

In light of the above, it may behoove you to pay for your upfront insurance premium portion outright at closing. This will help you to minimize your loan’s overall costs long term.

USDA Loans

These loans through the United States Department of Agriculture are ideal for buyers in suburban and rural areas and can also be used with Chenoa Fund DPA.

What makes these loans stand out from other loan options is that the rates are usually low. In addition, these loans require no down payment. Instead, Chenoa Fund DPA will cover your closing costs.

You may also roll eligible lender fees, allowable repair costs, and closing costs into your loan. You can do this up to your home’s value.

To be eligible for a USDA loan, you must generate income that does not exceed 115% of your target area’s median income. You should also generally have a 640 or higher credit score. However, the USDA does not have a credit score requirement, so even borrowers with lower scores can sometimes qualify for USDA-backed mortgages.

In addition, the home you’re interested in buying must be in a rural area. Unfortunately, these areas are usually far from cities and have aging infrastructures.

In addition, your desired home has to satisfy the USDA’s strict standards. This can be hard to achieve if the house was not built with financing through the USDA in mind.

VA Loans

VA loans can additionally be used with Chenoa Fund DPA. They are available through the United States Veterans Affairs department. These loans are specifically available for active military members and veterans.

Like USDA loans, VA loans don’t require any down payments. Chenoa Fund DPA will instead cover your VA loan closing costs.

Benefits of VA Loans

A VA loan can be a smart choice if you don’t have much cash on hand but have decent credit and have worked for the military.

Qualifying for these types of loans is quite easier compared with qualifying for other types of loans in multiple ways. One, there aren’t any strict credit limits. And two, there are no strict requirements related to the ratio of your debt to your income.

Rather, the underwriting criteria used to determine a person’s eligibility for a VA loan are at the lender’s discretion. Many VA lenders decide to lend based on the FHA’s loan standards, but they are not obligated to do this.

Another benefit of VA loans is that they are strict when it comes to how much borrowers can pay in fees and closing costs.

In the majority of cases, when it comes to covering the non-reimbursable itemized charges and fees listed on your settlement statement, also called your HUD-1 sheet, you cannot pay more than 1% of your loan amount. In addition, these charges and fees are stringently regulated.

Drawbacks of VA Loans

VA loans do have a few drawbacks worth considering as well.

First, you will have to obtain an eligibility certificate through the VA’s Center for Loan Eligibility or from your lender before closing your loan. This is an added step you don’t have to worry about with other types of loans.

Second, if you happen to have excellent credit and a lot of cash on hand, a conventional home loan may provide you with an even better mortgage interest rate.

Third, you’ll need to be prepared to pay a VA loan funding fee if you go this route.

Finally, some home sellers might be reluctant to accept your home purchase contract if you attach VA financing to it. This is particularly true if your seller or their real estate agent thinks your loan might take too long to close.

Conforming Loans

You can also take advantage of Chenoa Fund DPA with conforming loans. These are mortgages with conditions and terms that meet Freddie Mac’s and Fannie Mae’s funding criteria.

These loans cannot exceed certain dollar limits, which change each year. For 2023, this limit has been set at $726,200 throughout most of the country.

However, some costlier areas do have a higher limit. For instance, the limit in expensive markets like New York City and San Francisco is 150% of the $726,200 figure — or more than $1.08 million. The same is true for markets in the following parts of the United States:

United States Virgin Islands
Guam
Hawaii
Alaska

The benefit of these loans is that they usually come with relatively low interest rates. So, if you have excellent credit, these types of loans may be worth pursuing.

In addition, lenders generally like issuing conforming loans, as they can package them and sell them in today’s secondary home loan market as needed. After all, the majority of buyers utilize mortgages that Freddie Mac and Fannie Mae have backed.

Conforming loans usually require a 3% down payment as well as a 620 or higher credit score. The ratio of your debt to your income should also generally be less than 43%.

Furthermore, you should have a record of stable income and employment for the past couple of years to be eligible for a conforming loan.

How to Increase Your Chances of Securing Chenoa Fund DPA

Pursuing DPA can understandably seem like a daunting task if you’re a first-time buyer. However, you can put yourself in the best position to obtain help with your down payment by taking several steps.

Manage Your Debt

One of the most important things you can do on your journey toward homeownership is to control your debt amounts and keep your credit score as high as possible. That’s because you’ll need to meet the Chenoa Fund’s credit score requirement for the particular type of home loan program you choose.

As soon as you decide to start shopping for homes and seeking DPA, you should begin to pay off debt as well as work on boosting your credit. This is especially true if the ratio of your debt to income is high.

It may not be enough for you to simply avoid adding debt to your records or maintaining your existing credit score.

Choose a Reputable Lender

You’ll also want to choose a lender with a track record of success in helping their clients to obtain DPA.

Don’t shy away from asking your prospective lender what DPA options are available to you through the Chenoa Fund. In addition, ask them how various options would change your mortgage’s terms.

Be prepared to work with a lender to get help with your down payment, as you generally can’t apply for DPA programs through the entities that provide them. Instead, you must access this assistance through a lender that has applied to provide DPA.

Be Patient

As you seek to secure your dream home, you must be patient. That’s because obtaining a home loan takes time. Obtaining DPA can also take time, and this process could end up extending your home purchase process as well.

In light of this, it may be helpful to schedule your home closing date a little further out than you initially think you need. This will give you room to handle delays that might occur.

Be Mindful of All of Your Options

Finally, if you can’t seem to qualify for DPA through the Chenoa Fund or a mortgage program, keep all of your options open.

For instance, you may want to spend a few months to a year paying down debt and building up your credit score so that you can qualify for these programs later.

Alternatively, consider taking advantage of a rent-to-own housing program. This type of program will allow you to rent a house for an extended period. The payments you make can then go toward decreasing the home’s price so that you can more easily afford to buy it down the road.

How We Can Help a First-Time Buyer Get into a Home

Chenoa Fund down payment assistance, or DPA, can help you to receive funds that can go toward your down payment or closing costs for your future home. As a first-time buyer, you can take advantage of a forgivable loan or a low-interest loan with Chenoa Fund DPA.

At Competitive Home Lending, we have helped many first-time home buyers to get DPA and funding. We can help you to determine which DPA and loan program options would work best for you.