Fairhope Mortgage Down Payment Assistance Program Offers Alabama Buyers Up to 5% With No Income Limits

Fairhope Mortgage has announced a down payment assistance program that could help more Alabama homebuyers clear one of the biggest hurdles to owning a home: coming up with cash for the down payment.

The program, announced Friday, stands out from many traditional assistance options in two key ways. It has no household-income limits, and borrowers do not need to be first-time homebuyers to qualify.

Qualified borrowers may receive assistance worth as much as 5% of a home’s purchase price, according to the company.

How the Down Payment Assistance Program Works

The assistance is available to qualified borrowers who use an eligible Federal Housing Administration (FHA) loan or an eligible conventional mortgage to buy a home. Here are the main features Fairhope Mortgage outlined:

• Assistance amount: Up to 5% of the home’s purchase price
• Income limits: None
• First-time buyer requirement: None; repeat buyers may qualify
• Minimum credit score: 640
• Eligible loan types: Eligible FHA and conventional mortgages
• Eligible properties: Single-family homes, eligible manufactured or mobile homes, condominiums and townhomes
• Who can apply: Qualified Alabama buyers

Depending on a borrower’s eligibility and the applicable program terms, the assistance may be structured in one of two ways: as a forgivable grant, or as a subordinate second lien on the property.

Grant or Second Lien: What’s the Difference?

For buyers weighing their options, the structure of the assistance matters, and it is worth understanding before signing.

A forgivable grant generally provides funds that the borrower will not have to repay as long as the conditions of the program are met. Those conditions vary by program and can include requirements such as living in the home for a set period.

A subordinate second lien is a second loan secured by the home that ranks behind the primary mortgage. It may come with its own repayment terms, and it typically must be addressed when the home is sold or refinanced.

Because the specific terms depend on eligibility and the program rules that apply to each borrower, buyers should ask their loan officer exactly which structure they would receive, whether and when any amount must be repaid, and how the assistance would affect their monthly payment and future plans to sell or refinance.

Filling a Gap for Buyers Who Earn Too Much for Other Programs

Many down payment assistance programs across the country are designed for first-time buyers and set household income caps, often tied to a percentage of the area’s median income. That leaves out a group of buyers who have steady incomes but limited savings.

Tom Kalagher, owner and branch manager of Fairhope Mortgage, said that is the group the new program is meant to reach.

“This program opens the door for many Alabama buyers who earn too much to qualify for traditional income-restricted assistance but still need help managing the upfront cost of buying a home,” Kalagher said.

He added that the program is not limited to people buying their first home.

“It can also help repeat buyers who have the income to afford a monthly mortgage payment but do not currently have enough accessible cash for the down payment,” Kalagher said.

That situation is common. A household may comfortably handle a monthly mortgage payment, sometimes one similar to what it already pays in rent, while still struggling to set aside a lump sum large enough for a down payment and closing costs.

Understanding Down Payments on FHA and Conventional Loans

FHA loans are insured by the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development, and are popular with buyers who have smaller down payments or modest credit histories. For borrowers who meet the credit requirements, the standard minimum down payment on an FHA loan is 3.5% of the purchase price.

Conventional mortgages are not backed by a federal agency. Some conventional loan options allow down payments as low as 3%, while larger down payments can help borrowers avoid or reduce private mortgage insurance.

Even at those percentages, the cash needed can be significant. On a home priced at $250,000, for example, a 3.5% down payment comes to $8,750, before closing costs and other upfront expenses. Assistance worth up to 5% of the purchase price on that same home could reach as much as $12,500, which shows how a program of this size could cover a down payment for many qualified buyers.

Who Might Benefit

Based on the program’s requirements, the assistance may be worth exploring for:

• Renters with steady income who have not been able to save enough for a down payment
• Buyers whose income is above the limits of other assistance programs
• Current or former homeowners looking to buy again
• Buyers interested in condominiums, townhomes or eligible manufactured or mobile homes, in addition to traditional single-family houses

Borrowers will still need to qualify for an eligible FHA or conventional mortgage and meet the 640 minimum credit score.

Questions to Ask Before Applying

Down payment assistance can make homeownership possible sooner, but it is one part of a larger financial decision. Prospective buyers may want to ask a lender:

• Will my assistance be a forgivable grant or a second lien, and what are the terms?
• Does the assistance affect my interest rate or loan costs?
• What are my total monthly costs, including taxes, insurance and any mortgage insurance?
• Does the property I am considering meet the program’s eligibility rules?
• How much cash will I still need at closing?

Homeowners insurance is a particularly important line item for buyers on the Alabama coast, where premiums can be a substantial part of the monthly housing budget. Factoring it in early can help buyers avoid surprises.

How to Learn More

Buyers interested in the program can contact Fairhope Mortgage to find out whether they qualify and which assistance structure would apply to their situation. Eligibility depends on the borrower’s credit, the loan type, the property and the program terms in effect at the time of application.