Have you ever dreamed of owning a home but felt discouraged by the thought of a hefty down payment? You’re not alone. For many Americans, saving for a down payment can be a significant hurdle. Fortunately, there’s good news! Down payment assistance programs (DPA programs) can help bridge the gap and make homeownership a reality.
We aim to bring more attention to DPA programs and the positive effect they have on home affordability, especially for first-generation and first-time homebuyers. Down Payment Assistance programs have never been more crucial. By increasing awareness among both buyers and real estate professionals, we can empower more people to achieve the dream of homeownership.
Down payment assistance programs (DPAs) exist to help you buy a home. These programs can provide financial support for your down payment and closing costs.
- You don’t need a large down payment to buy a home. There are loan options with low or even no down payment requirements, and DPAs can further assist with this.
- Closing costs can be significant. Understanding these costs is crucial when budgeting for your home purchase.
- There are different types of DPAs. Grants, forgivable loans, low-interest loans, and deferred-payment loans are available options.
- Eligibility for DPAs is broader than you might think. Many programs are open to a variety of individuals, not just first-time homebuyers.
- Taking action is key. Research available DPA programs, get pre-approved for a mortgage, and work with a knowledgeable lender to guide you through the process.
What Are Down Payment Assistance Programs?
DPA programs are financial tools designed to ease the burden of down payments and closing costs for qualified homebuyers. These programs come in various forms, including grants, forgivable loans, and low-interest loans. They can significantly reduce the upfront costs associated with buying a home, making homeownership more accessible and affordable.
What Do Down Payment Assistance Programs Pay For?
Despite the general name of “down payment” assistance programs, many assistance programs allow funds to be used toward a down payment or closing costs, or both!
Down Payment:
Though there are several common loan programs with 0% down payment required for eligible buyers, generally the lowest down payment options you will find require 3-5% of the home purchase price to pay upfront on your loan.
Closing Costs:
Not as widely discussed as down payment, but equally as important is closing costs. This group of fees and expenses can potentially end up higher than your down payment amount (especially if using a low or no down payment option). Closing costs are fees and expenses, ranging from 2-6% of the loan amount that are also due at closing with the down payment.
They will cover services and taxes such as appraisals, title insurance, taxes, origination fees, etc. For example, if your home loan is $250,000, you might pay between $6,000 (2%) to $18,000 (6%) in closing fees especially if you live in an area with higher local taxes.
Pro TIP: Closing costs can also be a negotiation factor with the home seller/builder, real estate agents or your lender. You may not need a DPA program to help with these – let’s chat about this if you have more questions on closing costs.
Benefits of Down Payment Assistance:
Reduced Upfront Costs:
DPA programs can free up your savings, allowing you to focus on other moving expenses or future home improvements.
Increased Buying Power:
With DPA assistance, you could qualify for a higher loan amount, opening up more home-buying options.
Greater Affordability:
DPA programs can make monthly mortgage payments more manageable.
Accessible for Various Buyers:
DPA programs cater to a variety of individuals, including first-time homebuyers, people with disabilities, veterans, and low-to-moderate-income families.
Promotes Stable Communities:
By helping more people achieve homeownership, DPA programs contribute to building stronger communities.
Types of Down Payment Assistance Programs:
There are numerous DPA programs available to fit different buyers’ needs. Here are a few common types:
Grants:
A homebuyer grant is a type of DPA program that provides a one-time cash sum applied directly to reduce the amount needed for down payment on the loan. The best part is – they don’t have to be repaid.
Forgivable Loans:
These function like second mortgages but are forgiven if you meet specific requirements like paying your mortgage on time every month and staying in the home for a specific period (typically from 3-10 years). The loan is forgiven in increments until it’s completely forgiven at the end of the period. If you decide to move before then, you’ll need to pay back the funds that have yet to be forgiven. If you adhere to the requirements, you won’t have to pay the loan back at all!
Low-Interest Loans:
These loans are similar to second mortgages but with a lower interest rate than your primary mortgage. You’ll repay the low-interest loan along with paying monthly payments for the first mortgage, typically over a few years.
Deferred-Payment Loans:
You don’t typically pay interest on these loans, but you’ll eventually need to repay them when you sell the house or refinance the mortgage.
Individual Development Accounts (IDAs):
These matched savings accounts require participants to save money and receive matching funds from a government agency or community organization.
Who Offers Down Payment Assistance Programs?
There are thousands of down payment assistance programs nationwide. Programs may be offered by your state, county, and city government agencies, non-profit organizations, or even individual mortgage lenders. They can take the form of grants, loans, or a combination of both. The terms and conditions of these programs are all very different, but the ultimate goal is to make home-buying more accessible for more people by removing barriers or adding incentives.
The Department of Housing and Urban Development (HUD) has a list of local home buying programs by state. Check with your city and county to see if they offer any grants or loan programs. Your loan officer can also help you to find the right DPA program for you!
What Are the Eligibility Requirements?
Qualifying for a DPA program might be easier than you think – don’t rule yourself out! Eligibility requirements vary by program, but here are some common factors:
Property Location:
Some programs prioritize buyers in specific areas, like rural communities or Metropolitan Statistical Areas (MSAs).
Cash Reserves:
Programs might require a minimum or maximum amount of savings.
Homebuyer Education:
Many programs require completion of a homebuyer education course. These courses can be done in person or virtually and provide valuable information about the home buying process, financial management, and homeownership responsibilities.
Occupancy Requirements:
These programs are typically for primary residences, not investment properties or second homes.
Income:
Programs often help those with incomes below or within certain area median income levels.
First-Time Homebuyer Status:
Often the term “first-time homebuyer” will refer to someone who has not owned a home within the last 3 years. Check with each DPA program to understand their requirements.
First-Generation Homebuyers:
Some programs target first-generation homebuyers, who are less likely to be able to rely on assistance from family.
Individuals with Disabilities:
There are a variety of down payment assistance options available to borrowers who have a disability or a family member living with them that has a disability.
Service Professions:
Veterans, teachers, firefighters, and other community heroes may have access to specific programs.
Credit Score:
While some programs allow for lower credit scores, many still require a minimum credit score.
Misconceptions About Down Payment Assistance:
One of the biggest misconceptions about DPAs is that they’re only for first-time homebuyers. Not true! Did you know that you can qualify as a “first-time” home buyer even if you’ve owned a house before? You are considered eligible to apply for first-time home buyer loans and benefits if you haven’t owned your principal residence in the last three to five years. So, if you owned a home in the past but are renting now, don’t just count yourself out, just make sure to check how your target program defines the term.
Nearly 40% of all programs are open to repeat buyers who have owned a home within the past three years or longer.
The Steps to Getting Down Payment Assistance:
The steps to access a DPA program typically involve:
- Pre-approval: Connect with a mortgage lender to help you understand how much loan you qualify for and how much assistance you may need.
- Research and Apply for Assistance: Your loan officer will help discuss your eligibility factors and find DPA programs that you could qualify for.
- Homebuyer Education: Most programs require completion of a short online or in-person homebuyer education course.
- Approval and Assistance: If approved, you’ll receive details about the program and the assistance you qualify for.
- Purchase Your Home: Work closely with your lender and realtor to ensure a smooth transaction.
- Comply with Program Requirements: Maintain eligibility by meeting program requirements, such as occupying the home as your primary residence for a set period.
Still Unsure?
Even if you’re unsure if you would qualify for a DPA program, don’t hesitate to reach out to your loan officer. This will give you a clearer picture of your affordability and potential loan amount. Your loan officer can assess your situation and explore all your options, including DPA programs, gift funds, and other strategies to tackle down payment or closing cost challenges.
Your loan officer will be happy to help you narrow down the programs you may be eligible for and help you navigate the process.
Remember, homeownership is a dream within reach for many!
Please consult with the Loan Originator to discuss your options and to receive specific DPA information. You will need to apply for a first mortgage loan with NFM, Inc. in conjunction with any down payment assistance program. All information contained herein is subject to change at any time. A training class might be required. All DPA programs require to apply for a 1st and 2nd mortgage. Equal Housing Lender. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice.