Why Some Agents & Lenders Refuse to Work with First-Time Buyer Programs

MHFA, DAP, MCC’s, Bond, HomeReady, HomePossible, Land Trusts, FHA the array of “special programs” for first time buyers may appear dizzying. Due to the complexities associated with the programs many listing agents, selling agents, and even lenders shy away from those programs. Why? Is the likelihood of a transaction falling apart at the last minute that much greater because the buyer is using one of the first-time buyer programs?

But first, let’s outline some key terms.

Bond Programs: This involves the sale of the first mortgage, and usually a Down Payment Assistance (DAP) second mortgage, to a government entity (MHFA and Dakota County currently). These programs are an attempt by a government agency to remove “barriers to entry” facing potential homebuyers. These can be processed as either Conventional, FHA, VA or USDA financing, and sold to the bonding authority instead of an agency (Fannie Mae, Ginnie Mae…).

Mortgage Credit Certificates (MCC’s): This is a certificate issued by a bonding authority affording the buyer a Tax Credit to be filed with their federal tax returns annually. It’s like a “refund” of 20-25% of the mortgage interest paid each year (up to $2,000/year). These can be paired with a DAP (only through Dakota County CDA) and sold as a first mortgage/DAP combo OR processed as a Stand Alone MCC and paired with a standard Conventional/FHA/ VA first mortgage. Then the buyer receives the MCC as their only FTHB benefit.

Standalone DAP’s/Grants: Usually issued by local government agencies or nonprofit community organizations. These are processed as a companion to a more traditional Conventional, FHA, VA or USDA. Land Trust/Equity Sharing vehicles. These programs create large affordability advantage when the Land Trust funds the purchase of the “land,” so the buyer must pay for the improvements. It’s like a having a huge DAP grant to make a 20% down payment, so the buyer eliminates MI and has a much smaller mortgage payment but shares future equity.

There are numerous variations but suffice it to say that they all provide significant benefits to the buyer as well as additional hoops to jump through: income limits, documentation requirements, geographic restrictions, education requirements, subsidy recapture requirements … So, the question remains; are these programs worth the potential threat that these extra hoops might pose to the likelihood of a smooth closing? The answer depends upon which side of the closing table you sit.


For many buyers, the transaction would not be possible without these programs. Saving 3-5% for down payment, plus another 3-4% for closing costs, is simply beyond the range of many buyers. For these clients and their agents, it’s a no brainer. The alternative is to wait 1-3 years to save a down payment, while the price of homes grows much faster than their savings account.

For other buyers, the transaction could take place without the program, but they would be left with nothing for repairs, furniture and cash reserves.


Yes, these programs take more man-hours to originate, process and close. No, these programs are not as profitable as their non-subsidized counterparts (for lenders only). Yes, there are several ways that a deal, earmarked for one of these programs, can fall apart leaving a lender to scramble for another program. But by gaining expertise and experience with these programs, you can look your clients in the eye with confidence, knowing that you’ve identified the very best program available, and had the expertise to bring them to closing smoothly.


Pros: The pool of potential buyers increases if you’re not afraid to accept offers with special financing. Therefore, the potential for multiple offers and maximum price points increase!

Cons: You may have to sign additional documents, usually including a Seller Affidavit at or prior to closing. Some bond programs require such labor-intensive lender packages that its more likely for a closing to be delayed or canceled. This typically depends on the skill and experience of the lender processing the transaction.

Ultimately, the risk is dependent on the lender handling the transaction. So whichever side of the closing table you’re on, if you or someone on the other side is using one of these programs, make sure the Loan Originator and the lender are experts in this type of lending before you proceed. Ricky Cheath 

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