These Programs Can Help You Buy Your Dream Home in Today’s Market
Home prices are sky-high, and homebuyers are finding it more and more difficult to come up with a sufficient down payment. Down payment assistance programs can help them buy the home of their dreams.
Buying a home is an investment in the future, but lenders typically require a down payment before they’ll loan the balance of the money to purchase a house. According to the Consumer Financial Protection Bureau (a branch of the federal government), a down payment of about 20 percent is standard. For many would-be buyers, however, coming up with that much money isn’t realistic. That’s where down payment assistance programs (DPAs) come in: They offer loans and grants to qualified buyers to help with their down payments.
What are down payment assistance programs?
DPAs are financing programs that provide the funds to cover or defray the cost of a down payment. Depending on the specific program, money may be available as a low-interest loan or a grant that need not be paid back. The amount available depends on the individual program, but can range from $1,000 to as much as $50,000 or more. Many of the organizations that help with down payments are registered at the state level as Housing Finance Agencies. Their purpose is to make mortgages more affordable.
The Benefits and Perks of DPAs
Obtaining additional money for a down payment comes with substantial benefits. It could mean being able to make an offer on a higher-priced home, or it could result in smaller mortgage payments and a lower loan balance. For some homebuyers, a DPA allows them to buy a house now rather than having to wait a few months, or years, until they can save up enough money for the required down payment.
Qualifying for Down Payment Assistance
Most DPA programs are designed to help first-time homebuyers but don’t be discouraged if you previously owned a home. According to Bankrate, to qualify as a first-time buyer, you need to have not owned a home in the past three years. So, if you owned a home years ago but sold it and have been renting or living with relatives for at least the past three years, you’re considered a first-time homebuyer. You can also qualify if you owned a home with a former spouse but are now divorced.
Types of Down Payment Assistance Programs
Down payment assistance programs are usually local, and, in general, you’ll find four primary types:
1. Grants that you don’t have to pay back.
2. Loans that must be paid back in monthly installments.
3. Deferred loans that don’t have to be paid back unless you refinance your home mortgage or sell the house.
4. Forgivable loans you only pay back if you sell the house before the forgivable period ends, typically 5 to 7 years.
Who can help me find a DPA?
Most DPAs are funded at the local level. The best way to find out about the down payment programs in your community is to call local lenders, real estate brokers, or both. When new programs come out, the agencies offering the funding typically send the information to lenders and real estate brokerages. Reach out to more than one lender or agent because banks provide different types of mortgages. A lender that makes specialty loans may have DPA information that a lender that only makes conventional loans won’t have.
Types of Mortgages That Qualify for Down Payment Assistance
Many DPA programs work with the most common mortgage types, including conventional loans, such as those underwritten by Fannie Mae or Freddie Mac. Other qualifying mortgages may include (depending on the specific terms of the DPA) Federal House Administration loans, Veterans Affairs loans, and U.S. Department of Agriculture loans. Find the DPA first, and then apply for the qualified loan type. A good real estate agent can help you navigate the various loan types and terms.
Down Payment Assistance by State
The national Department of Housing and Urban Development (HUD) maintains an interactive site that allows users to find out what type of house-buying assistance is available in their states. First, select the state from the main page and scroll through the menu offerings at the bottom. Some states list a “Homeowner Assistance” link, while others have a “Learn About Homeownership” or similar link that will take viewers to a page where they can find DPA information. However, the HUD site doesn’t list all DPA information, so don’t forget to check with local lenders and brokers.