January 31, 2024
If you’ve been struggling to save up for your down payment, you may qualify for a down payment assistance program to smooth the path and make homeownership a reality sooner than you thought possible.
If you’ve been struggling to save up for your down payment, you may qualify for a down payment assistance program to smooth the path and make homeownership a reality sooner than you thought possible.
You’re brown-bagging your lunch, foregoing that expensive latte every morning and saving your nickels and dimes. Still, you may be frustrated that you’re not making more progress toward saving up for your down payment. In fact, as home prices have risen along with interest rates in recent months, you may feel that your goals are getting, if anything, further away.
The good news? There are programs in place that can help you save up for your down payment and get you into a home sooner than you think. These down payment assistance programs are designed to give qualified homebuyers a leg up and make the dream of homeownership more possible for more people.
Down payment assistance comes in all shapes and sizes, from programs based on geographic location to those that are based on income or other factors. Often, they have one of two goals: to help make homeownership more affordable for those who might otherwise struggle to come up with a down payment and to promote the purchase of homes in certain neighborhoods or metropolitan markets.
Why would groups offer help with down payments? First, homeownership is good for communities and the local economy. When residents have a long-term financial stake in their homes, they tend to take better care of them and invest in other goods and services, like landscaping and home improvement. That keeps property values high and neighborhoods desirable. In addition, property taxes help to support local infrastructure that is vitally important for those neighborhoods.
Secondly, homeownership is good for individuals and families. It promotes stability and has even been statistically shown to correlate with better educational outcomes. Thus, making homeownership possible is a positive goal for many social and financial organizations.
There are a variety of down payment assistance programs available. Some come from lenders, some come from civic organizations, and some come from nonprofit organizations. Here are a few of the most common.
A grant is a gift of money toward the down payment and does not require a repayment plan.
Zero-interest loans that are forgivable are provided up front for the transaction and are then forgiven as long as you meet certain criteria. In some cases, you must occupy the home as your primary residence for a specific period, often five to ten years, to have the loan forgiven.
In this type of loan, the down payment assistance loan is provided upfront, and no payment is due until the home is sold, paid off, or the mortgage is refinanced.
In this case, the down payment is covered by a long-term (usually 10 years) second mortgage. This allows cash-strapped homebuyers to stretch the saving of the down payment over a long period of time, making it possible for them to buy without having to wait until they’ve saved an adequate down payment amount.
Often, down payment assistance programs are offered to first-time homebuyers, though there are a fair number of programs that are geared toward any homebuyer, regardless of whether they have previously owned a home. Contrary to popular belief, first-time homebuyers are not only those who have never purchased a home. For the purposes of most programs, a first-time homebuyer is one who has not owned a home in the past several years.
The purpose of considering these purchasers as first-time homebuyers is to get people back into homeownership who may have experienced a financial hardship that caused them to sell their home in a short sale, experience a foreclosure, or file for bankruptcy. By allowing them to qualify for first-time homebuyer incentives, they can come back into the housing market and begin rebuilding their financial foundation.
In some cases, you are required to meet certain financial criteria to qualify for a down payment assistance program. This could include maintaining an adequate credit score since you will need to be able to qualify for a mortgage as well. There may also be requirements regarding the debt-to-income ratio and other financial factors.
Many down payment assistance programs are income-based so you will not qualify if your income is too high. In addition, they often support homebuyers who are buying in low or moderate-income areas, so you’ll need to make sure that your prospective home falls within the program limits.
Different programs have different requirements, as well. In some cases, they may want you to take a homeownership readiness class to make sure that you are adequately prepared for the financial and logistical responsibilities involved. These may be offered in person or online through regularly scheduled webinars.
In addition, some programs may require you to work with a lending advisor to ensure that you are financially ready for your purchase. While these requirements may seem somewhat time-consuming and onerous, it is good to keep in mind that they require just a few hours of your time in exchange for both a large amount of money and some good advice that will help you feel more confident as you make your homebuying decisions.
Down payment assistance programs vary by state. So, the best way to find one in your area is by working with a well-qualified lender. They will have information on all the latest programs available, both through community organizations and through cooperation with lending institutions and loan products and programs.
In addition, by talking with your lender and obtaining a preapproval, you’ll have a better idea of how much money you’ll need for your down payment as well as closing costs and other expenses. This will give you better insight into which type of down payment assistance program you’ll qualify for, and which will be right for your particular purchase.
