If you have been following the news regarding the US Economy as of this month, March 2023, things haven’t been on the bright side lately as the housing market is spiraling up and down due to the rate hike and banking crisis. Many homebuyers almost gave up their dream of buying a house.
However, Dream for All Mortgage program has been shared by many Loan Officers, Lenders, Real Estate Agents, and become a buzz lately due to its apparent benefits. I bet some of you out there are thinking that this program sounds “too good to be true” and to be honest, I would do the same thing too. So is it as dreamy as it sounds? We’re here to cover everything you need to know.
Note: As of April 10th, the program has been paused by the state of California and the resume date is yet to be determined.
What is the Dream For All Program?
The Dream For All Program Mortgage is a mortgage loan program that provides assistance to low- to moderate-income homebuyers who are looking to purchase their first home. This program is designed to help make homeownership more affordable and accessible for those who may not have the financial means to purchase a home on their own.
The Program is typically available through participating lenders throughout the United States. The program offers a fixed-rate mortgage loan that can be used to purchase a single-family home, townhome, or condominium. The loan can also be used to refinance an existing mortgage on a primary residence.
Please note, this program is not the same as the First-time Homebuyer Program as both have some critical differences. Do speak to your loan officer for greater details or you can email us at mortgage@chadvorealestate.com
The Dream for All Shared Appreciation Loan (SAL) Program
The Dream For All Shared Appreciation Loan (SAL) is a component of the Dream For All program designed to help low- to moderate-income homebuyers purchase their first home. The SAL is a second mortgage loan that is offered in conjunction with the first-lien mortgage loan provided by the Dream For All program. As a matter of fact, many homebuyers apply for the Dream For All program just for this portion alone.
The SAL is a unique type of loan that allows homebuyers to borrow additional funds to help cover the down payment and closing costs of purchasing a home. Unlike a traditional second mortgage loan, the SAL does not require monthly payments or accrue interest. Instead, the SAL is repaid when the home is sold or refinanced, and the homeowner shares a portion of the appreciation in the home’s value with the lender.
When the home is sold or refinanced, the homeowner pays back the original amount borrowed plus a percentage of the appreciation in the home’s value. The percentage of the appreciation that is shared with the lender is based on the original loan amount and the length of time the homeowner has owned the home.
The Dream For All SAL can be an attractive option for homebuyers who need assistance with the down payment and closing costs of purchasing a home. By sharing in the appreciation of the home’s value, the lender is able to recoup the funds provided through the SAL, while the homeowner is able to purchase a home with a lower down payment and reduced out-of-pocket expenses. The maximum amount granted varies depending on the location of the property and the borrower’s income level, which can range from 3% to 17% of the first-lien mortgage loan amount.
Dream For All SAL's Eligible Requirements
To be eligible for the Dream For All and SAL program, the homebuyer must meet certain income and credit requirements. The program is designed for individuals and families with low- to moderate-incomes, and the income limits vary depending on the location of the property. Homebuyers must also complete a homebuyer education course to qualify for the program.
- Income requirements: The program is designed for individuals and families with low- to moderate-incomes, and the income limits vary depending on the location of the property. Homebuyers must provide proof of income, such as tax returns, pay stubs, and bank statements. Feel free to check California Housing Federal Agency guidelines here.
- Credit requirements: Homebuyers must have a minimum credit score of 620 to be eligible for the program. Lenders may also consider other factors, such as the homebuyer’s credit history, debt-to-income ratio, and employment history.
- Property requirements: The property being purchased must be a single-family home, townhome, or condominium that will be used as the homebuyer’s primary residence. The property must also meet certain minimum property standards, such as being in good condition and meeting certain safety requirements.
- Homebuyer education course: Homebuyers must complete a homebuyer education course approved by the Department of Housing and Urban Development (HUD) or a counseling agency approved by HUD. This course helps homebuyers understand the home buying process, including the responsibilities of owning a home, and how to manage their finances.
- Other requirements: Homebuyers must not have owned a home in the past three years, and they must have a stable source of income and be able to afford the monthly mortgage payments and other housing-related expenses. Homebuyers must be either U.S. citizens or legal residents of the United States to be eligible for the program.
Of course, this will serve us as a general guideline but more requirements may vary depending on lenders and the location of the subject property.
The Benefits of Dream For All
With lots of uncertainty for the economy within upcoming years, many homebuyers have given up the dream of owning a home due to financial struggles. Yet, this program has given many homebuyers some sort of hopes again with its great benefits. Some of the benefits of the Dream For All program include:
- Lower upfront costs: The SAL can help reduce the amount of money required upfront to purchase a home. The loan can be used to cover the down payment, closing costs, or other expenses associated with buying a home, which can help make homeownership more affordable.
- No monthly payments: Unlike a traditional second mortgage loan, the SAL does not require monthly payments. This can be particularly beneficial for homebuyers who may be struggling to make ends meet during the early years of homeownership.
- Lower overall borrowing costs: Because the SAL does not require monthly payments or accrue interest, the total borrowing costs associated with the loan can be lower than those associated with a traditional second mortgage loan.
- Increased purchasing power: By reducing the upfront costs of homeownership, the SAL can help homebuyers qualify for a larger first-lien mortgage loan, which can increase their purchasing power and enable them to buy a more expensive home than they could afford otherwise.
The Not-So-Great (but not too bad)
One of the main disadvantages of the Dream For All Shared Appreciation Loan (SAL) is that the borrower will owe a portion of the home’s appreciation to the lender when the home is sold or refinanced. This means that if the value of the home increases significantly, the borrower may owe a substantial amount of money to the lender, which could impact their ability to sell or refinance the home in the future. But you should ask yourselves, when is the next time you plan to move or purchase a house again? And by then, will the shared profit be worth sharing? Perhaps, this is the biggest catch for the program but at least they’re pretty upfront about it.
Now, if you live in a “hot” state like California, you know that in most counties, housing market is extremely competitive with bidding wars happen left and right. Unfortunately, the Dream For All’s applicants, in sellers’ and their agents’ eyes, are not considered strong applicants simply because you would need to go through several approval processes comparing to a traditional mortgage applicant. Therefore, without the right approach, you will always appear as a “weaker” bidder to them and may miss out on many offer acceptances.
Another potential disadvantage of the SAL is that it may be more complex than a traditional second mortgage loan, as it involves a shared appreciation arrangement between the borrower and the lender. This can make it more difficult for some borrowers to understand the terms and repayment requirements of the loan.
Finally, it’s worth noting that the SAL may not be available in all areas or through all lenders. Borrowers who are interested in the SAL should check with their lender or a housing counselor to determine if the program is available in their area and whether they meet the eligibility requirements.
In Conclusion
Just like any other federal assistance program, yes, there is such thing as “too good to be true”. But as long as you stay informed and educated in many aspects, taking a calculated risk will take you to the next level. The Dream For All Program Mortgage is a great option for low- to moderate-income homebuyers who are looking to purchase their first home. The program offers a low down payment, fixed-rate mortgage loan, and can be used in conjunction with other down payment assistance programs.
With the right strategies for both long-term and short-term, homebuyers can achieve their dream of homeownership and build equity for their future. The right parties making this happen often involve your CPA, Loan Officer, your Real Estate Agent, and perhaps your Financial Advisor as well.
For our team’s take, unless you absolutely need this program, we tend to discourage clients away from this program (yes, we also know about mortgages) simply because the equity that you are given up in the long run may exceed the amount that you potentially gain. Instead, here’s a few alternatives one may explore:
- Save enough money and utilize the First Time Homebuyer Program, which only requires as minimum as 3.5% down-payment and you don’t have to give up any equity in the future
- If any, perhaps a gift amount from your relatives will work better in your favor when gathering funds for the down-payment
- Explore other financing option! In the current market, some sellers are in need of funds for whatever reasons or have some greater sense of urgency than usual. To the point that they are willing finance your mortgage (if all logistics pieces make sense) and this is called Seller’s Financing. Your realtor (or our team) can definitely check with the selling party if this option is available.
- Pain for me to really say this, but even after you learn all the information about this program and speak to countless of loan officers and you STILL debate if this is the right move, you may want to re-evaluate if it’s a good time for you to purchase.
By all means, this is just our personal take and we are not licensed Financial Advisor to legally advise you on how you should handle your funds. This article serves for educational purpose only!
If you are interested to learn more or would like to check if you are qualified for this program, feel free to email us at mortgage@chadvorealestate.com
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