Down Payment Assistance Programs

What is Down Payment Assistance?

When you are in the process of buying a home, buyers will normally have to put down a payment that is equal to a percentage of the home’s final purchase price, which is commonly known as a down payment. The amount that a homebuyer will need to put down varies by lender and mortgage programs. Some programs don’t require any down payment, while some may recommend putting 20% down. Sometimes, coming up with this amount of cash is difficult for homebuyers. Down payment assistance programs can help you cover your down payment if you are a first-time home buyer.

How Can I Qualify for Assistance?

Most state, federal and nonprofit programs consider you a first-time homebuyer if you have not had any kind of homeownership in the last 3 years, even if you have owned a property before that 3-year period. If you fall under this category, you can qualify for down payment assistance.

How Does Down Payment Assistance Work?

Down payment assistance can come in the form of grants, loans and other programs, typically reserved for first-time homebuyers. Assistance programs are run by organizations such as local or state housing authorities, or by nonprofits. Down payment assistance eligibility is determined by your household income, credit history, and varies by state and program.

An application is needed for most down payment assistance programs and may also require training or homebuyer education on the mortgage process and maintaining finances.

How much assistance you are granted will depend on the specific program. Some programs offer a percentage based on the home sale price, while others cap the assistance at a certain dollar amount. When you are researching different programs, look at their requirements and how much you can receive.

Types of Down Payment Assistance Programs

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  Grants

  Grants provide money that homeowners never have to repay, making them the most valuable form of down payment assistance. It is considered a gift due to the lack of repayment by the borrower. Make sure you carefully read the terms of the grant before signing because some grants may actually create a second lien on your home. Also, be sure to make your lender aware of the grant to protect yourself from a “silent” second mortgage.

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  Forgivable Loans (At 0% Interest)

  These are second mortgages that borrowers will not have to pay back as long as they stay in a home for a certain number of years. These loans come with a 0% interest rate and participating lenders will forgive them. However, if you move before the forgiveness period ends, you will have to repay the loan. This second mortgage will normally be large enough to cover your entire down payment.

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  Deferred-Payment Loans (At 0% Interest)

  Borrowers may also qualify for a second mortgage with a deferred payment that you won’t have to repay until you move, sell, or refinance your first mortgage. These loans are not forgiven, so borrowers will have to repay them if you ever leave the home. Homeowners usually use the proceeds from selling their property to pay off the assistance loan.

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  Low-Interest Loans

  Your lender or another organization may offer borrowers the opportunity to take out a second mortgage at the same time as your first one. Borrowers can use the funds from this second loan to cover your down payment and will repay this loan each month. This means that borrowers will be making two mortgage payments each month.

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  Matched Savings Programs

  Also known as individual development accounts, these are another way for homebuyers to help pay for their down payments. These programs require borrowers to deposit money into an account with a bank, government agency or community organization. These institutions will agree to match however much the borrower deposits. Buyers can then use the total amount saved to help cover their down payments.

In Conclusion

The best place to begin when it comes to down payment assistance programs is to start the process of getting pre-approved for your mortgage. This will help you determine home much house you can realistically afford before saving for a down payment. After you are pre-approved, that is when you can start researching different programs in your area and how much assistance you will need.