By Quincy Crawford, Chase Sr. Home Loan Advisor
If you dream of owning a home but can’t afford the down payment for a home loan, you’ll be happy to know that there is state and local assistance programs to help you make home ownership a reality for you. A large number of grants and loans are available to help cover down payments and closing costs for first-time home buyers across the country. Learn more about them as you take your first steps on the exciting journey to home ownership.
What is down payment assistance?
Local and state financial agencies provide most of the down payment assistance available for home buyers. Combined with mortgages, these programs aim to make housing more affordable. Here are some available options:
- Subsidies: As a qualified homebuyer, you may receive funds to cover down payment on your new home. It’s money you don’t need to pay back. Grants can also cover closing costs if you already have the full amount of the deposit.
- Repayable loans: Also known as second mortgage down payment assistance programs, these are low-interest or interest-free loans that can be forgiven. To be eligible for a pardon, you must meet certain requirements. In most cases, borrowers must continue to own and live in the home after a period of time to avoid loan repayment.
- Deferred repayment loans: These are usually zero-interest or low-interest loans that offer a fixed rate to help cover the down payment and closing costs. Generally, payments are not due unless you sell the home or refinance your mortgage. If you decide to sell and have a zero interest deferred repayment loan, you only have to pay back the amount you borrowed, no matter how long it takes.
- Low interest loans: If you don’t qualify for grants or forgivable loans, you may still qualify for a low-interest loan that helps cover your home’s down payment and closing costs. These loans generally offer a repayment plan at a competitive interest rate. Although these must be repaid, they spread the payment costs over time to reduce your initial upfront costs.
How to qualify
There are many programs and options available to help pay the down payment on your new home. While most of these programs are intended to support first-time home buyers, don’t let previous homeownership deter you. If you haven’t owned a home in the past three years, you may still be eligible for some programs.
You can also benefit from targeted programs. These programs are designed to help valuable workers like firefighters, police officers, teachers and active duty military members buy homes.
Your eligibility depends on various factors. Although each program has different eligibility criteria, here are some of the things that determine how much assistance you can receive and under what conditions:
- Your credit score.
- Your debt to income ratio.
- Your income.
- The number of people in your household.
- The purchase price of the accommodation cannot exceed the maximum limits set by the assistance agency.
- Completion of a homebuyer education program.
Aid programs cannot finance the down payment of rental or investment properties. This type of assistance is only intended for buyers who will live in their new property.
How to get down payment assistance
There are programs available in different states. Each program requires its own application forms and process. By working with a local real estate professionalyou can gain insight and understanding of local programs offered by your city and county.
You can also apply for a mortgage with a lender who works with down payment assistance programs. Once approved, program issuers send funds to the lender at closing.
What if you qualify?
Down payment assistance programs can be a great option to help you become a homeowner when you don’t have the funds available to cover a down payment. If you qualify, it is important to review the mortgage interest rates offered with these programs. Sometimes these rates can be higher and result in a more expensive mortgage with a higher monthly payment. If so, you will need to weigh your options and decide what is best for you.
Some buyers in this situation choose to delay buying their home. When buyers save themselves for the down payment, they often get a better mortgage interest rate regardless of down payment assistance programs. This can result in long-term savings for the homeowner.
On the other hand, there are buyers who qualify for down payment assistance programs and choose to accept the higher mortgage interest rates. This allows them to buy a house sooner while benefiting from reduced personal expenses in the short term.
Alternatives to down payment assistance programs
Some buyers don’t qualify for down payment assistance programs, but still need help with the initial costs of home ownership. If you find yourself in this situation, there are alternatives to get the help you need. Some of them include:
- Matched Savings Programs: These programs partner with nonprofit organizations or government agencies to help with your down payment. You open a dedicated deposit savings account and receive matching contributions from organisations.
- Down payment assistance programs from lenders: Some lenders also offer their own assistance programs. Typically, these options have fewer restrictions on ownership history. They are often available to current owners, as well as first-time buyers. Usually, these loans require you to use the funds only to purchase your primary residence. They offer fixed interest rates set by the lending institution and are based on their own eligibility criteria
- Family gifts: Sometimes parents or other family members can offer you the funds to cover all or part of your down payment. If you are using family donations to secure your home loan, you need to ensure that these funds are documented. It’s also important to keep donation amounts within your lender’s limits. Lenders have their own restrictions on what percentage of your down payment can come from gifts.
There are a variety of affordable loan programs that can help with your down payment or closing costs. Contact a mortgage advisor today for more information on affordable loans and assistance programs available.