Quick Summary
- DACA recipients will be able to apply for FHA loans starting on January 19, 2021.
- As a Dreamer, you must demonstrate your legal right to be in the country in order to apply for an FHA loan.
- Dreamers may potentially qualify for loans backed by Freddie Mac and Fannie Mae.
Deferred Action for Childhood Arrivals (DACA) recipients will finally have full access to Federal Housing Administration (FHA)-insured loans as of January 2021.
Due to their lower credit score standards and lower minimum downpayment requirements, FHA loans are excellent choices for first-time homeowners from poor to middle-income families. The long-awaited Dreamers will now have more mortgage alternatives and better access to affordable housing in America thanks to this new rule.
Can DACA Recipients Apply for FHA Loans?
Dreamers are people who entered the country illegally when they were young, usually of their own free will. These people are Americans since they were born and raised here. Many people don’t realize they aren’t legitimate American citizens until much later in life.
DACA recipients only have a limited number of options for financial help. As a result, many DACA recipients bear a greater financial burden in addition to the threat of deportation.
Conventional loans that aren’t backed by government agencies used to be the sole option for DACA applicants when it came to housing. What does this mean for FHA loans, though, given that the standards have changed?
FHA’s Position on DACA Mortgages
DACA beneficiaries were not eligible for FHA loans before to January 19, 2021 since one of the requirements for the loan was that the borrower must be a US citizen with legal residency in the US. DACA recipients weren’t regarded as legal citizens up until recently.
DACA recipients can now be approved for FHA loans. One of the final actions taken by the Trump Administration was this one.
Sen. Sherrod Brown (D-OH) is the head of the banking, housing, and urban affairs committee in the senate, said after the announcement: “After spending years confusing borrowers and lenders, at the eleventh hour the Trump Administration finally reversed its discriminatory policy and confirmed what we all know should have been true all along – that DACA recipients are fully eligible for FHA loans.”
DACA FHA Loan Requirements
DACA recipients must meet the same qualifications and conform to the same eligibility standards as every other American citizen applying for an FHA loan.
According to the FHA, these are the requirements for DACA recipients:
- The property shall be the principal residence of the Borrower;
- the borrower must possess a current Social Security Number (SSN), with the exception of those who work for the World Bank, a foreign embassy, or another employer approved by HUD as an equivalent;
- The Employment Authorization Document provided by the USCIS must show that the borrower is authorized to work in the United States.
- The borrower must adhere to the same standards, rules, and regulations as US citizens.
Every borrower for an FHA loan must also accomplish these standard requirements to qualify:
- Credit score and down payment. For the lowest minimum down payment of 3.5%, you need a credit score of at least 580. You will need to put down at least 10% of the purchase price if your credit score is 500 to 579.
- Debt-to-Income (DTI) ratio. Your DTI ratio must be 43% or below to meet requirements. Higher DTI ratios, up to 57%, can be taken into account with compensating factors, though. It varies from case to case.
- Proof of employment and stable income. To verify that you will continue to work and make your monthly mortgage payments, lenders usually request two years’ worth of job history.
- History of debt. Lenders want to know if you’re a reliable person to loan to. This means checking your history of handling debt. If you fall behind paying your student loans or taxes, you may get rejected. But FHA loans are known to be more flexible compared to other loans when talking about the history of debt or bankruptcy.
- Paying of Mortgage Insurance Premiums (MIP). For the duration of their FHA loan, every borrower will be required to make monthly MIP payments. One of the biggest drawbacks of an FHA loan is this. Later on, you can lower your payments by using a streamline refinance, or you can refinance your loan into a conventional loan instead.
The prerequisites outlined above are the same for all FHA loans. FHA loans come in a variety of forms. For instance, you will need to complete the same requirements with a few extra steps if you want to apply for a 203(k) loan.
Every FHA loan applicant needs to find the right lender for them, especially as some can have various rules and regulations. But when it comes to Dreamers, this is even more pertinent.
Once you find the right fit for you, talk to your lender and ask ahead of time if they have experience in loaning to DACA recipients and ask how much loan you qualify for to jumpstart your path towards homeownership.
Other Home Loans DACA Can Qualify for
Conventional Loans
Before the reversal of the discriminatory act that didn’t allow DACA recipients to apply for government-backed loans, conventional loans were the only option. It’s still an option to this day. But note that some lenders may have different qualifications and requirements. When choosing this route, shop around for the right lender that preferably has experience with lending to Dreamers.
Fannie Mae Conforming Loans
Mortgage companies backed by Fannie Mae take Dreamers’ applications into account. According to Fannie Mae’s eligibility guidelines, Dreamers can be considered legally present in the USA if they can provide:
- Individual Taxpayer Identification Number (ITIN) or Social Security Number (SSN) (ITIN)
- A valid employment authorization card (EAD) or other evidence of current immigration status may serve as proof of one’s current, verified status (e.g., Green Card, work visa, etc.)
- Evidence of continuing income
Conforming Loans from Freddie Mac
Mortgage companies backed by Freddie Mac take Dreamers’ applications into account as well. Dreamers are taken into account, just like Fannie Mae and other conventional loans, so long as they can demonstrate that they are legally residing in the nation.
Dreamers Can Now Apply for DACA FHA Loans
Due to the FHA’s expanded eligibility requirements for DACA recipients, Dreamers now have more alternatives for home loans and better access to affordable housing. The path to home ownership for Dreamers with solid credit, an acceptable DTI, and a steady salary has never been simpler.
Of course, DACA beneficiaries should consider their alternatives when deciding which credit type is best for them, whether it be a conventional or federally-backed loan, just like any other legitimate American resident.
FAQs
Those with DACA: Can They Earn Credit?
DACA recipients can build credit and get credit cards, but the options may be more limited. One of the popular U.S. credit card issuers, such as American Express, Capital One, Discover, and Wells Fargo, will accept your application for a credit card.. According to Immigration Help.org, You may have to follow different procedures depending on the issuer, but you’ll most likely need to present these to prove your identity:
- Name, address, and birthdate
- Authentic photo identification, such as a passport or driver’s license
- A bank statement or income documentation
- Mail of Your name, address, Social Security Number (SSN), or Individual Taxpayer
- Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)
Does DACA Have an Age Limit?
If you want to apply for DACA, there are age requirements to be eligible.
There are age limits to be eligible to apply for DACA.
You must have arrived in the United States before turning 16 years old and have been younger than 31 as of June 15, 2012. Additionally, you must currently and consistently reside in the United States as of June 15, 2007.