In 2021, FHA home loans are once again attainable for hundreds of thousands of young beneficiaries of Deferred Action for Childhood Arrivals (DACA). Brought to the country as young children, DACA recipients are called Dreamers because they received temporary conditional residency, Social Security numbers, and work permission under the Development, Relief, and Education for Alien Minors (DREAM) Act.
Dreamers have grown up in the United States. They consider it home. To be DACA-eligible, they’ve studied for a diploma or G.E.D., or performed military service. Under DACA, they may continue to study and hold jobs without deportation fears.
Most Dreamers are now in their 20s and 30s — a time in life when many young adults consider buying houses. And now, many more can.
Politics, Dreamers, and the Mortgage World
DACA became effective in 2012 through an executive order signed by then-President Obama. The Trump administration attempted to end it. During a time of intense political pressure against DACA, the Federal Housing Administration (FHA) stopped backing DACA mortgages. That left would-be applicants with fewer loan options. But the FHA’s stance only held up so long.
The Fair Housing Act prevents real estate professionals, lenders included, from treating anyone differently on account of citizenship status. Under federal law, noncitizens are entitled to buy and finance property. This principle was tested in two recent class-action suits against the Wells Fargo Bank. In settlements, the bank agreed to change its policies and pay millions in financial damages after declining credit applications from DACA beneficiaries because of their immigration status. At issue: rejected applications for auto loans, student loans, credit cards, credit lines, small business loans, and, yes, home mortgages.
As the class-action suits underscore, citizens and noncitizens alike are entitled to receive loans if their credit and employment histories demonstrate a solid ability to repay. Thus, Fannie Mae did not stop lending to Dreamers. People are “legally present” in the U.S., Fannie Mae noted, and eligible to apply, if they hold:
- A Social Security or individual Taxpayer Identification Number; and
- Current work authorization (C33 code for DACA participants); or
- Other documentation of current status, such as a green card or valid employment visa.
Therefore, Dreamers could request the Fannie Mae HomeReady Loan by submitting the typical proof of income documentation such as W-2s, pay stubs, and account statements. That didn’t always mean smooth sailing for Dreamers, though. Fannie Mae said that the actual lenders they work with could decide “what type of documentation is appropriate and what can be retained as part of the loan file to show that a borrower is legally present.”
Future Pathways to Citizenship?
In recent months, multiple federal courts have ordered the Trump administration to restore DACA. They have held that the Trump administration improperly issued a number of rules; the suspension of DACA was one of them. Meanwhile in Texas, a series of legal challenges have continued to target DACA. And in any case, as it stands, DACA does not lead to permanent resident status or citizenship.
Legal initiatives are active to offer Dreamers more predictability in the future. On Inauguration Day, President Biden presented Congress with the U.S. Citizenship Act of 2021, a plan to put Dreamers on the citizenship track. The House of Representatives, in March 2021, followed up by passing the Dream and Promise Act of 2021. If it can get through the Senate — and that’s a big if — it will also help children of farmworkers and professionals who came to the country on work visas.
Many working parents have gone through the correct green card application process, but waited so long for their approvals that the kids have “aged out” — turned 21 while waiting for the government to get to their applications. Some young people leave the country at that point, headed for their parents’ countries, which are unfamiliar to them. Others apply for student visas or simply fall out of status and do their best to live in the country where they’ve grown up. Under the Dream and Promise Act, children who arrived with a parent through an approved work visa would avoid uncertain, potentially dangerous futures. As for DACA participants, they may renew their status every two years and continue to live and work in the United States. Yet they’re at the mercy of political shifts unless more predictable laws are enacted.
Current FHA Mortgage Requirements for DACA Beneficiaries
Today, Dreamers hoping for opportunities to borrow with the FHA should know these loans are available. In Mortgagee Letter 2021-12 (published May 2021), the FHA clarified that DACA participants, refugee or asylees, and other non-permanent residents are welcome to apply for FHA loans.
Applicants for FHA loans should be ready to meet the following requirements:
- The FHA loan requested is for an applicant’s primary residence.
- The applicant must submit a Social Security Number, unless employed by the World Bank, a foreign embassy, or equivalent entity.
- The applicant holds an Employment Authorization Document (EAD) with a demonstrable likelihood of renewal, or is living in the U.S. with refugee or asylee status, and thus automatically permitted to work.
The loan applicant must also be able to meet the same requirements and conditions that apply to U.S. citizen loan applicants.
Conventional loans, which require a credit score of 620+, are available with Fannie Mae or Freddie Mac. The reinstatement of the FHA loan offers a wider spectrum for noncitizens. This means more options for hopeful homebuyers than they had with the conventional loan path alone.
Approved FHA loan applicants with credit scores of 580 and up can make down payments as low as 3.5%. Yet many lenders, even those working in collaboration with the FHA, will require a score of 620 or 640. Borrowers should also be prepared to purchase private mortgage insurance if a down payment is less than 20%.
Getting Ready: Tips for Young Home Buyers
Ready to buy a home? Do some loan comparisons before actually applying. Look out for lenders charging unusually high interest rates.
The U.S. Department of Housing and Urban Development (HUD) provides information on shopping for homes, applying for loans, and understanding your rights. You can find HUD’s guide to buying a home here.
Before buying your house, deciding how to vest your title, or accepting gifts from family members, be sure to get an understanding of the tax and inheritance effects.
☛ Co-Owning Property With a Non-U.S. Citizen? Here’s what you need to know about Home Ownership and Estate Planning When One Co-Owner is a Non-U.S. Citizen.
Estate planning in which assets pass from or to noncitizens should be guided by your immigration lawyer, or an estate planning attorney who has knowledge of immigration matters. Ask your immigration lawyer for recommendations.
Research suggests that young people who become homeowners live more affluent lives. We wish you the best on your journey to homeownership, and lasting financial well-being.
Supporting References
U.S. Department of Housing and Urban Development: FHA to Permit DACA Status Recipients to Apply for FHA Insured Mortgages (PDF; Jan. 20, 2021).
Michelle Hackman with Konrad Putzier for the Wall Street Journal: Trump Rule Tightening EB-5 Visa Program Struck Down by Federal Judge (Jun. 23, 2021).
Giulia McDonnell Nieto del Rio for the New York Times: What Is DACA and Where Does It Stand Now? (May 14, 2021).
MALDEF (Mexican American Legal Defense and Educational Fund): Landmark Settlement Reached in Lending Discrimination Class-Action Cases Brought by DACA Recipients Against Wells Fargo (Jun. 17, 2020).
Photo credit: Omar Lopez, via Unsplash.