Buying a home with an FHA loan is now easier for Deferred Action for Childhood Arrivals (DACA) recipients.
The Department of Housing and Urban Development (HUD) included DACA recipients among eligible borrowers for FHA loans back in January. But the agency issued clarification on the matter last week, updating its eligibility requirements in the process.
More specifically, HUD expanded the documents that non-permanent residents can use to qualify.
Here’s what you need to know about the changes, as well as DACA recipient loans in general.
The benefits of the changes
Opening up FHA loans could be a game-changer for DACA recipients, many of whom have been in America since birth (or shortly thereafter).
The FHA mortgage program is one of the easiest to qualify for in terms of credit score and down payments. It offers very competitive mortgage rates as well.
The opportunity to become homeowners through a low down payment, federally insured mortgage could help DACA recipients build wealth earlier and more affordably than would have otherwise been possible for them.
Here’s what House Rep. Juan Vargas (CA-51) had to say about it: “Dreamers are working, tax-paying Americans and have every right to own a home. I’m pleased to see that HUD has rightfully extended this eligibility to our Dreamers.”
What’s changing for DACA recipients
HUD’s latest announcement doesn’t change DACA FHA eligibility. However, it does clarifies the documents that non-permanent residents can use to qualify for those loans.
Here’s a full look at the eligibility requirements non-residents must meet, as well as the documents they can use to prove that eligibility:
- They buyers must use the property as a primary residence — not a second home, vacation house, or investment property. (This is a standard requirement of all FHA loans)
- They must have a valid Social Security Number unless employed by the World Bank, a foreign embassy, or an equivalent employer
- They must be eligible to work in the U.S. and have one of the following:
- An Employment Authorization Document (U.S. Citizenship and Immigration Services Form I-766) showing their current work authorization status
- A USCIS Form I-94 showing their H-1B status, plus evidence of employment with an authorized H-1B employer for at least one year
- Evidence of refugee or asylee status granted by the USCIS
- Evidence of citizenship in Micronesia, the Marshall Islands, or Palau
If a borrower’s Employment Authorization Document is set to expire within the year, the lender will need to determine how likely it is that authorization will be renewed. They may use past renewals as a guideline or, if those are unavailable, work with USCIS directly.
Other requirements to qualify
Borrowers will also need to meet the standard requirements of the FHA loan program, which include at least a 3.5% down payment, a 580 credit score, and a debt-to-income ratio (DTI) of 50% or less.
Some borrowers can get approved with a higher DTI. It’s also possible to qualify for an FHA loan with a 500 credit score, as long as the borrower can put down 10%. The down payment can come from gift funds.
Borrowers who are living in the U.S. under refugee or asylee status must provide an Employment Authorization Document (USCIS Form I-766) indicating this status, or a USCIS Form I-797 showing the approval of their Application for Asylum or Withholding of Removal.
History of DACA recipients and FHA loans
Prior to this year, the FHA handbook included a statement that “Non-U.S. citizens without lawful residency in the U.S. are not eligible for FHA-insurance mortgages.”
FHA mortgages are among the most accessible home loans out there because of the flexible credit score and low down payment requirements. Generally speaking, borrowers must have a credit score of 580 or higher to qualify with a 3.5% down payment.
But lenders can approve borrowers who don’t have a credit score or traditional credit history using other documentation, broadening the scope of who can qualify.
Former HUD Secretary Ben Carson waived the rule against qualifying DACA recipients briefly in June 2020. But then HUD reinstated the policy, once again directing lenders to deny DACA applicants.
On January 19, however, the agency announced it would waive the rule once again and, eventually, strike the line from future handbooks entirely.
“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,” HUD wrote in the January update. “To avoid confusion and provide needed clarity to HUD’s lending partners, FHA is waiving the above-referenced FHA Handbook subsection [barring DACA recipients from eligibility] in its entirety.”
Since then, DACA recipients have been free to apply — and potentially qualify for — low-interest loans backed by the Federal Housing Administration. According to United States Citizenship and Immigration Services, there were 643,560 active DACA recipients nationwide as of March 2020.
The bottom line
DACA recipients can officially apply for FHA mortgage loans. And with last week’s announcements, there’s now a clear picture of the documentation required to do so.