The down-payment-assistance pickle

Flickr photo by ayalehs.

Q: I was recently told I don't have enough "open lines of credit" to qualify for my town's down-payment-assistance program for first-time homebuyers. But I have three credit cards -- one with a balance -- and a school loan, which I pay on time. Isn't that enough?

A: As a young child, my Dad taught me that she who has the money makes the rules. Whether that was an appropriate lesson for a young child notwithstanding, it certainly was an accurate one!

Mindset Management

As you've discovered, when you're applying for any sort of home financing, you have to shift into the mindset reflected in the financing program's guidelines. In the real world, most people would think that your credit lines -- or trade lines, as they're called in the mortgage industry -- reflect a very responsible credit profile. Not too much debt, not overextended, two cards that are paid off and everything paid on time? Sounds fabulous, right?

Maybe not -- in the mortgage universe. In home finance, the pertinent question is not "are you financially responsible and debt-free?" but "can you demonstrate that you actively, regularly and responsibly use credit?"

Need-to-Knows

Trade lines are what lenders use, in addition to your credit score, as documentation that you have credit, use it and use it responsibly. Traditionally, lenders required four lines of credit that had been open and active for 24 months as a minimum requirement to qualify for home mortgages.

Recently, though, many lenders are starting to see it the other way around. It seems to have dawned on the mortgage banking world that perhaps a consumer who has been responsible enough to largely avoid debt is an attractive mortgage borrower. What you are running into is common -- city-run down-payment-assistance program (DAP) guidelines tend to evolve more slowly than mainstream mortgage programs. As a result, while many bank mortgage loans no longer have a trade line requirement, lots of DAPs still do. ...CONTINUED

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