DACA Status Recipients Now Eligible for FHA Mortgages

In January, the Federal Housing Administration updated its policy to allow “Dreamers,” US residents with DACA status, to qualify for FHA mortgages, which are federally-backed mortgages. The FHA will now approve home loans for DACA recipients, allowing them access to the low down payments traditionally associated with FHA loans — that are so popular with homebuyers in the US.

What does this mean for DACA recipients? This new rule expands the mortgage choices for Dreamers, giving them access to more affordable and accessible avenues to owning a home.

If you’re a DACA recipient who now qualifies for an FHA loan, or if you know someone who is, here’s what you’ll want to know.

Previous FHA Rules for Dreamers

The FHA’s official policy before this change was that DACA recipients were not eligible for FHA loans. The FHA’s official statement, according to its Single-Family Housing Handbook, was that “non-US citizens without lawful residency in the US are not eligible for FHA-insured mortgages.” Further, prior to the agency rule change, those individuals who qualified for this program did not count as lawful residents to the US Department of Housing and Urban Development (HUD), the agency that oversees the FHA.

Moving forward, the agency plans to remove this language from all future versions of the Handbook. “The term ‘lawful residency’ pre-dates DACA and thus did not anticipate a situation in which a borrower might not have entered the country legally, but nevertheless be considered lawfully present,” the agency announced in a statement made about the change. “To avoid confusion and provide needed clarity to HUD’s lending partners, FHA is waiving the above referenced FHA Handbook subsection in its entirety. In a subsequent update to the FHA Handbook, the language will be removed.”

FHA loans have much more lenient and relaxed guidelines and requirements than other mortgage loans, making them one of the easiest mortgage loans to qualify for. Considering this, the FHA’s new agency rule is a significant development for many Dreamers who hope to own their own homes.

What does this mean for DACA recipients?

This agency rule change is a huge development for Dreamers, who are now more likely than ever to be able to own their own home — and enjoy all of the benefits that come along with it. Under these new rules, low-income DACA recipients can not only own a home, but also provide their family with stability — a welcome respite during these unprecedented times.

During the COVID-19 pandemic, many DACA families struggled to keep a roof over their heads. Being able to qualify for an FHA loan, and the stability that comes from owning a home with a mortgage that is federally backed is a great start to helping families build on their progress in recovering from the challenges brought forth by the pandemic.

What are the benefits of an FHA loan?

FHA loans are especially popular with first-time homebuyers, given their relaxed qualifications. Here are some of the benefits of FHA loans:

• Lower credit score requirements. The lowest credit score accepted for an FHA mortgage is 500, with a 10 percent down payment. Further, applicants who have had significant financial challenges, such as foreclosure or bankruptcy, may still qualify for an FHA loan, even though they would almost certainly be turned down for a conventional mortgage loan. If your credit score is 580 or higher, you are only required to make a 3.5 percent down payment.
• A higher debt to income ratio is allowed. Your debt to income ratio, or DTI, is figured by dividing your total monthly debt payments by your gross monthly income. FHA loans allow for a higher DTI than conventional loans, up to 43% — and some lenders will even allow for a higher DTI under certain circumstances.
• Various housing options. FHA loans can be applied to a number of different housing types, including a single-family home, a condominium, a multifamily home consisting of 4 or fewer units, or a manufactured home that sits on a permanent foundation.

I am a DACA recipient. Am I eligible for an FHA loan?

If you are a DACA recipient and have dreams to own your own home, the FHA loan program may be a great fit for you. But how do you know if you are eligible?

In their announcement, the FHA explains that borrowers will need the following:

• A valid Social Security Number (SSN), except for those employed by the World Bank, a foreign embassy, or equivalent employer identified by the Department of Housing and Urban Development (HUD)
• Eligibility to work in the US, as evidenced by the Employment Authorization Document issued by the USCIS
• To satisfy the same requirements, terms, and conditions as those for US citizens

Beyond these points, a credit score of 580 is required for a 3.5 percent down payment, and a credit score of 500 for a 10% down payment. You will also need to be sure that your loan amount (the sale price of your home minus your down payment) is within the FHA’s loan limits for your geographic area. Lastly, the home must be your primary residence, meaning that you play to live there full time.

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