Need help with your down payment? Look no further
Down payments can seem very intimidating, especially for first-time buyers.
If saving thousands – or tens of thousands – sounds like a pipe dream, a down payment assistance program can help. These can cover some or all of your down payment needs. And in some cases, you never need to repay the funds.
Loan advisor Ivan Simental explained how DPA works in a recent episode of The Mortgage Reports Podcast. If you’re looking for help with your down payment, here’s what you need to know.
Check your eligibility to buy a home. Start here (August 11, 2021)
Listen to Ivan on the Mortgage Reports Podcast!
What is the assistance for the payment of a deposit?
Down payment assistance programs (PADs) provide funds specifically to first-time home buyers. As a rule, these can only be used on the down payment portion of the purchase. However, with some programs, you will also be able to use the funds for closing costs.
âThe down payment assistance programs are amazing,â mortgage consultant Ivan Simental told The Mortgage Reports Podcast.
âIf that’s the only way to get financing, it’s a great opportunity for you to step into a home you love and start your homeownership journey.
So how much can you get from these programs?
In many cases, DPA programs give you a fixed percentage (say, 2% to 5% of your purchase price). For example, if the program offers 3% assistance and the sale price is $ 300,000, you could receive $ 9,000 towards the purchase of your new home.
Other PAD programs may match your contribution or give you a set amount to pay for your down payment.
4 types of down payment assistance programs
Down payment programs vary from state to state, so the exact help you may be eligible for depends on where you live. In total, there are over 2,000 DPA programs across the country.
There are four types of down payment assistance that may be available, depending on the programs in your area. These include grants, second mortgages, second deferred mortgages and second mortgages with discounts.
Let’s take a closer look at the four.
1. Subsidies to homebuyers
Down payment assistance grants are typically funds provided by the state or a state-run agency. They can also come from associations.
Grants are only for low income home buyers and never need to be repaid under any circumstances. According to Simental, these are the most common types of DPA programs.
2. Second mortgage
Down payment assistance can also take the form of a loan, also known as a second mortgage.
With these types of programs, the state or agency lends you money and you pay it back monthly just like you do with your primary mortgage. (An important note here: this is a second payment in addition to payment of your first mortgage.)
3. Deferred second mortgages
With some down payment assistance loans, you don’t have to make payments right away. Instead, you’ll defer CCA payments and pay off your loan only when you sell the house or refinance your mortgage. In this case, the funds would come from the proceeds of your sale.
4. Second mortgage forgiven
The final type of down payment assistance is a forgivable loan. As long as you stay in the house for a period of time (usually five to 10 years), the loan is canceled and does not need to be repaid.
However, if you move or refinance your loan before then, you will usually have to repay the funds, or at least a portion on a pro rata basis.
Check your eligibility to buy a home. Start here (August 11, 2021)
Eligibility for down payment assistance
The exact requirements for down payment assistance will depend on the program you decide to use (and what is available in your area). Generally speaking, however, you will need to match the profile below:
You are accessing the property
The majority of grant programs are designed only for first-time home buyers. In some cases, however, you may be eligible if you haven’t owned a home in some time.
âIf you’ve been selling your property and it’s been over three years, you’re technically considered a first-time buyer,â Simental said.
You have low to moderate income
Down payment assistance programs are for consumers who would otherwise have difficulty buying a home. For this reason, most have strict income requirements that you will need to meet in order to qualify.
Generally, household income limits are based on the area’s median income (MAI). So if you have a middle or low income for the area you live in, chances are you will qualify.
You buy a principal residence
You can only use down payment assistance on principal residences, that is, a house in which you intend to live full time. These programs cannot be used for second homes, vacation homes or investment properties.
The house can also be a single-family residence, but not always.
You are using a participating lender approved by the DPA agency
Not all mortgage lenders work with all down payment programs. As Simental said, âThe mortgage lender you work with must be approved by the agency that runs the down payment assistance program. ”
Your best bet is to ask your loan officer which down payment assistance programs they work with or, if there is a specific PAD you are considering using, ask the agency which lenders they recommend.
You are ready to take a training course for home buyers
Most home buying assistance programs require the borrower to complete a homeowner education course in order to be eligible.
Fortunately, these courses can often be taken online. And first-time homebuyers typically learn valuable information that will help them not only buy a home, but also manage their monthly payments and ongoing property acquisition costs.
You may be eligible for both the DPA program and your mortgage
Finally, you must be able to meet the eligibility criteria for your DPA program and your mortgage program.
Some PADs only work with one type of loan – for example, an FHA mortgage – but many can be used with any major loan program, including:
- Compliant loans supported by Fannie Mae or Freddie Mac
- FHA loans supported by the Federal Housing Administration
- VA loans supported by the Department of Veterans Affairs
- USDA loans supported by the US Department of Agriculture
Note that VA and USDA loans do not require a down payment. But saving money can help lower your interest rate and monthly mortgage payments.
Depending on the home loan you choose, there may be minimum credit score requirements, limits on your debt-to-debt ratio, and in some cases you may be limited to buying a home in some cases. regions.
Ask your loan officer for more details on the requirements you will need to meet before going ahead.
How to find down payment grants or loans
There are over 2,000 first-time home ownership programs across the country, with multiple ODAs in each state. So how do borrowers find help in their area?
Start by asking your loan officer. They may have worked with borrowers using down payment grants and should know what programs the mortgage company is partnering with.
In addition, you can:
- Ask your real estate agent or real estate agent for recommendations
- Contact your state housing finance authority or agency (HFA)
- Check the Department of Housing and Urban Development (HUD) website, which lists programs by state, city, and county
Finally, you can do a simple Google search for “installment assistance programs in [state/city/county]. âThis should yield some programs that you can take a look at as a starting point.
Need help with the down payment?
If you are considering using down payment assistance to buy a home, contact a mortgage advisor in your area. They can direct you to programs in your area and advise you on application and qualification.
Finally, “ask a lot of questions,” Simental said. âThere is no such thing as a stupid or a stupid question. The more questions you ask, the more informed you will be.
Many homebuyers line up for down payment help and don’t even know it. So don’t let this opportunity go to waste. Take a look at local programs and see if you can get a grant or a loan to cover your initial purchase costs.
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