Down Payment Assistance Programs
Today there is money available for first time home buyers. In a much-needed addition to today’s financial products, down payment assistance programs are available once again. Down payment assistance programs are generally a local, state, or federal grant or bond program designed to help certain people with certain income levels in certain areas, with money that can be used for the down payment and the costs of closing of many purchase loans.
These tax-free grants or loans are generally forgivable as long as the buyer stays in the home for a designated period of time. And these dollars can dramatically change the amount of money required for closing when these first-time homebuyers purchase a home.
For example, a typical FHA borrower may have to contribute more than 4-7% of the total sales price, while a borrower with a WISH down payment assistance program may only need to contribute 2-3%. total. That is a large amount of money in a transaction of several hundred thousand dollars. If you write off that difference, the savings are literally tens of thousands of dollars, since most of the closing costs are financed by the new mortgage programs.
Down Payment Assistance Programs
Down Payment Assistance Programs (DPAs) help home buyers with loans or grants that reduce the amount they need to save for a down payment.
As long as you qualify, you could receive a full grant or a low-interest or no-interest loan to cover your down payment. Some DPA funds can also be used for closing costs.
Most down payment assistance programs programs are offered locally. And the eligibility requirements vary from program to program.
Many down payment assistance programs require you to be a first-time home buyer (meaning you haven’t owned a home in three years) with a decent credit score and a low or moderate income. But not all programs have these same rules.
Also keep in mind that many down payment assistance programs have a list of “participating lenders” they work with. Therefore, you may need to choose a lender that is approved by their assistance program.
Types of Down Payment Assistance Programs
There are four main types of down payment assistance programs:
- Grants: gifted free money that never has to be repaid
- Loans – Second Mortgages Paid Monthly Along With Your Primary Mortgage
- Deferred Loans – Deferred payment second mortgages that only need to be paid when you move, sell, or refinance
- Forgivable loans – Second mortgages that are forgiven over a set number of years (often five, but maybe up to 15 or 20). These should only be refunded if you move, sell, or refinance too soon
Some DPA loans are interest-free, some have lower rates than your first mortgage, and others require a rate equal to or higher than that.
A quick count of the programs listed below suggests that all four types of APD are widespread. Grants are the most common, but not by much.
Who Qualifies For Down Payment Assistance Program?
Down payment assistance programs are typically intended for first-time home buyers.
However, a repeat home buyer often counts as a “first time home buyer” if they have not owned a home in the last three years.
Other requirements may include income limits, purchase price limits, and buying a home in a qualifying area. Many programs also require homebuyer education courses.
Each down payment assistance program is a little different. The exact criteria for qualifying will depend on where you live and what programs are available.
With that said, many of them have similar guidelines, including:
- First-time homebuyers only
- Buyers must be low to moderate income
- The house will be a primary residence.
- The house is in a “focused” census tract
- The DPA is used in conjunction with an approved mortgage program.
- Work with an approved mortgage lender
Programs vary by zip code, but you are likely to get more money and qualify more easily if you shop in one of the so-called “destination areas.” Your lender can help determine if your property is eligible.
Finding Down Payment Assistance Near You
Down payment assistance programs are often very localized. There are some national down payment assistance programs and many at the state level, but most are administered at the city or county level.
The best way to find down payment assistance programs that you qualify for is to talk to your loan officer. They are likely aware of local loan and grant programs that can help you. They will also know which programs the lender can accept (not all lenders work with all DPAs).
If you want to do some research on your own, you can also Google “down payment assistance grants in [state, county or city].”
This will help you find current programs specific to your area that you could apply for.
What Mortgages Can Be Used With Down Payment Assistance?
Almost all down payment assistance programs require that you borrow from an approved lender and use an approved mortgage program. You may need to subscribe to a particular mortgage product.
However, DPA-approved mortgages often include the most popular loan programs, such as:
- FHA loans (backed by the Federal Housing Administration)
- VA loans (backed by the Department of Veterans Affairs)
- USDA loans (backed by the US Department of Agriculture)
Many also allow you to borrow conventional loans (the ones that are not guaranteed by the government), including those backed by Fannie Mae and Freddie Mac.
In other words, the mortgage products allowed by your down payment assistance programs can be very flexible.
How Much Down Payment Grant Can I Get?
Down payment assistance programs are a kind of zip code lottery.
Depending on where you want to shop, you could stand in line for nothing. Or a few thousand dollars in the form of a second mortgage. Or many thousands in the form of a grant, which you will never have to repay.
For Example:
- In Seattle, you could get up to $55,000 as an interest-free loan that you don’t have to repay until you move, sell, transfer, or refinance your home. And that could be decades later
- Or, in Kauai County, Hawaii, you could save up to $80,148 over the life of your loan.
Of course, some owners will qualify for more and others for less. The only way to know how much help you need is to find local down payment assistance programs in your area and apply.
8 Down Payment Assistance Program Options
Here are eight down payment assistance programs you could use as a first-time home buyer.
1. Chenoa Fund
One source of national down payment assistance (except New York) is the Chenoa Fund. The Chenoa Fund is an affordable housing program administered by the CBC Mortgage Agency (CBCMA), a government entity authorized by the federal government.
The Chenoa Fund provides up to 3.5% Down Payment Assistance, or DPA. Conveniently, that’s the down payment you need for an FHA loan. If you have a FICO® Score of 620 or higher and a DTI of 45% or less, you will get a second mortgage with no interest or payments.
If your income is less than 115% of your area median income and you make your mortgage payment on time for 36 months, the mortgage is forgiven. If you earn more than 115% of your area median income, you must repay the DPA.
If you make a late mortgage payment, you will be given a second chance at loan forgiveness. You can reset the period and the mortgage will continue to be forgiven if you make payments on time for the next 36 months.
2. Community Seconds
Community Seconds is a Fannie Mae approved second mortgage (more on Fannie Mae below) that allows home buyers to use funds available from state and local governments as well as non-profit housing organizations to conduct a Down Payment, Get Help With Closing Costs, And Even Complete Minor Renovations.
Contact your local HUD office for more information on down payment assistance programs and closing costs available where you live.
3. HUD Home Programs
When it comes to housing issues, the US Department of Housing and Urban Development, or HUD, is the supreme leader.
HUD directly helps Americans who need housing assistance. It encourages responsible home ownership through its programs. HUD sells homes in foreclosure and sponsors programs, discussed below, that make home buying easier for a variety of low- and moderate-income individuals.
HUD houses the Federal Housing Administration or FHA. The FHA finances mortgages made by private lenders according to its rules. In addition to HUD and the FHA, the US Department of Veterans Affairs, or VA, and the US Department of Agriculture, or USDA, offer loan programs that provide collateral through private lenders.
This option is not a form of down payment assistance programs per se, but a way to buy a home at a discount, with only a 3.5% down payment (if you qualify for an FHA mortgage; more on that in Option 6 of the Program).
If you are looking for a bargain, consider buying a HUD home. HUD homes are homes that were last purchased with an FHA loan. Due to foreclosure, the government now owns these properties and HUD manages them until they are sold. HUD homes are purchased “as is.” That means the government does not offer guarantees and will not make repairs.
Potential buyers are strongly encouraged to conduct a thorough home inspection so they know exactly what they are getting into. If you buy a HUD home with an FHA mortgage, you may be able to finance the renovations with an FHA 203 (k) loan and roll over both loans into one convenient monthly payment.
HUD also runs special home buying programs that in some cases require no down payment and in others offer deeply discounted homes. Some of these programs include The Good Neighbor Next Door, the Section 8 Housing Choice Voucher Program, and the Section 184 Indian Home Loan Guarantee Program. You can learn more about the eligibility requirements for each. of these programs directly from HUD.
4. Government Sponsored Entities
Fannie Mae and Freddie Mac are government-sponsored entities that work to purchase loans after origination to keep lenders liquid and to encourage low- and middle-income families to become homeowners. And on the other hand they are helping single mothers for housing.
Lenders must meet Freddie and Fannie’s requirements in order to sell their mortgages to them so they have the liquidity to issue future mortgages. Fannie Mae’s participation in the Community Seconds program helps lenders confidently originate primary mortgages because Fannie Mae promises not to avoid buying her loans because of the subordinate mortgage.
Fannie Mae finances the HomeReady® mortgage, while Freddie Mac finances the Home Possible® mortgage program. Your backing makes it possible to get a single mom home loan with as little as a 3% down payment.
5. HomePath Homes
If you are a first time home buyer, you may want to consider a HomePath property. These are Fannie Mae-owned homes that are offered to the public at a discount after the previous owner defaults on a Fannie Mae-owned mortgage.
There are many good reasons to consider a HomePath home for your first home purchase, including low down payments and eligibility for the HomeStyle renovation loan.
But none is more attractive than the closing cost assistance (up to 3% of the home purchase price) that is available if you take the HomeReady homeownership course online and ultimately purchase a HomePath home. This means that if you buy a HomePath home for $200,000, you will get a credit of up to $6,000 in closing costs.
6. FHA Loans
Loans insured by government agencies, such as VA or FHA loans, are not technically examples of down payment assistance programs. However, these government-backed loans generally allow buyers to make lower down payments, even with slightly shaky credit. This can be of help to first-time buyers who may be concerned about having thousands of dollars at closing.
FHA loans are insured by the Federal Housing Administration, a division of HUD. With an FHA loan, you can buy a home with as little as a 3.5% down payment if your credit score is 580 or higher.
If a 10% down payment is available, you may be approved with a credit score as low as 500. Rocket MortgageSM requires a minimum score of 580.
7. USDA Loans
USDA loans are for people looking to buy homes in rural or suburban areas. To qualify, your home must be in an area that the USDA considers “suitably rural.” There is an income limit for this loan, which means that you also cannot earn more than 115% of your county median income and your property must not be a working farm.
With a USDA loan, you can buy a home with no down payment. Rocket Mortgage does not offer USDA loans at this time.
8. VA Loans
VA loans are home loans for current members of the military, veterans, and certain spouses of deceased military personnel. You must meet the service requirements before you can get a VA loan. Like a USDA loan, a VA loan allows you to buy a home with no down payment support.
The Bottom Line
Don’t let worry of getting money for a down payment keep you from buying a home. Today’s buyers have more options than ever to raise these funds.
It is possible to qualify for a mortgage from conventional lenders with a down payment as low as 3% of the final purchase price of a home. And if you need help making an even lower down payment, down payment assistance programs offered by community organizations, government agencies, and local lenders could help you overcome this financial hurdle.
- Down Payment Assistance Programs