How to Structure a DPA Transaction with No Cash or Credit
Looking for a way to get traditional lending for a deal without cash or credit? It’s called DPA. Before your eyes glaze over in acronym avoidance, hear this one out. It’s a bit complicated, but if you can keep it all straight, you can structure a no cash, no credit deal in no time.
This term – DPA – Down Payment Assistance doesn’t really exist anymore, but it’s out there if you know where to look.
The Elements of Structuring the DPA
You’ll need three things to make this happen:
Owner equity that’s equal to the down payment and fees.
Proof of seasoned funds.
You don’t want to tell your broker about this – not because it’s illegal or unethical, but because the lenders don’t like it and and underwriters don’t understand it. The danger is not getting first position conventional funding or not approving the deal.
How to Make It Happen
First, your owner’s equity must match your percentage of down payment plus all fees. So, you’ll need to figure out these costs before you make your LOI or offer.
Once you know your costs – down payment, transactional funding fee, proof of funds fee, closing costs, appraisal and inspect, etc. – you can write up your offer with a buyer’s repair credit clause (i.e. the amount of owner equity.)
Next, your transactional funding company will provide you with the down payment and other fees to pay at closing. You’ll pay them back the down payment, closing costs and their fee at closing. It’s not a loan per se. It’s more of an exchange of funds.
Your lender may ask you for proof of funds (your own funds), so you’ll need to work with a proof of funds company to show “seasoned funds” or that you have the money on hand.