Almost every type of mortgage, except for VA loans and USDA loans, requires some type of down payment equal to a percentage of the purchase price of your home. That down payment must be cash and not money from another line of credit. The actual percentage can vary, but even a small percentage can be hard for some FTHB to come up with. Down payment assistance is designed for these borrowers.
Who is considered a FTHB and eligible for DPA?
To qualify as a FTHB, you can’t own rental or investment property nor have owned a home in the last three years, and the home you want to buy must be your primary residence. That means you could have owned a home four years ago, sold it, and still be considered a FTHB.
DPA programs are usually available to low to moderate income home buyers who might not be able to buy a home without some type of assistance. Household income limits are usually based on the median income for your area. If you have an average or low income for your area, you could be eligible.
Other requirements or qualifications
- Credit Score of 620 or above
- Home must be a specific area/county
- Most programs require you attend a class on home buying and finances
- Remain in the home for a specified time frame: 3, 5, 10 years
- You must use a lender who is approved by the DPA agency.
What kind of down payment assistance is available?
DPA usually comes from the state or local government levels. You may also find non-profit organizations that assist low-income FTHB. Most of the programs are grants or loans.
A grant is a gift that never has to be repaid. These are often government assistance programs offered through local housing programs.
Forgivable Loans (0% interest)
This loan is considered a second mortgage. However, it doesn’t have to be repaid if the homeowner stays in the home for a specified time. Lenders often require the homeowner to stay for at least five years, but it can be longer. If the house is sold or refinanced, the owner must pay a portion of or the entire down payment loan back to the lender.
Deferred Payment Loans (0% interest)
These are also second mortgages, but they are repaid. Most of the time you do not have to repay them until you sell, refinance, or pay down your first mortgage.
Low Interest Loans
Some lenders or organizations offer a low interest loan to cover the down payment. Although you have to repay this monthly along with your mortgage, ideally it’s at a lower rate. Some may offer these without interest but require monthly payments beginning when you start paying your mortgage.
Matched Savings Programs
A government or non-profit organization matches whatever cash amount you deposit into this savings program then you receive the full amount to put toward your down payment. For example: If you have $4,000, they will match that amount. You now have $8,000 to put toward your down payment. There is no interest or repayment. The match is a gift.
How do you get started?
Find out your credit score and see if you this might be an option for you. If so, research the programs available in your area. HUD (Housing and Urban Development) provides a list of state programs.
Down payment assistance makes it possible for FTHB to make their dream of owning a home come true. If you need this assistance and you have the credit score to qualify, it’s worth the time and effort.