You've found your first home and your lender has approved you for a mortgage. But there's one catch — you're short of the cash needed for a down payment. Help may be available.

Requirements

Must be Your Primary Residence

Homeownership program administrators require that the home is occupied as a primary residence in order to qualify.

Eligible Properties

Include single-family homes, townhomes and condos. Plus, some 2- to 4-unit multifamily properties are allowed if the buyer is also an owner occupant.

Home Sales Price

The home price limit can go from $250,000 up to well over $700,000 in certain high cost markets.

Where to turn for help

Every year, many state, county and city governments provide financial assistance for people in their communities who are well-qualified and ready for homeownership. Requirements vary, but if you’re eligible you could receive down payment assistance ranging from a few thousand dollars to larger amounts, depending on your needs, your qualifications, and where the home is located.

Additionally, many programs specifically benefit veterans, Native Americans, and workers employed in education, health care, law enforcement, and firefighting are available.

Who can get down payment assistance?

Most down payment assistance programs are for first-time buyers, but don’t count yourself out if you’ve ever owned a home. The programs typically define a first-time buyer as one who hasn’t owned a home for the past three years.

The requirements for each program vary, but besides being a first-time home buyer, you typically must:

  • Take a home-buyer education course.
  • Meet income limits. Many programs are geared to low- and moderate-income residents, so a borrower’s household income must be below a certain threshold.
  • Purchase in an approved location.
  • Stay below the maximum home purchase price, which is usually a percentage of an area’s median home purchase price.

 

Types of Help

  • Grants – Funds that you do not have to pay back as long as you own and occupy your home for a certain period of time.
  • Second mortgage loans – The most common down payment source, many second mortgage loans offered by state and local governments have low or zero interest rates, and the payments are deferred over a specified time span and, in many cases, the loan is completely forgiven over time.
  • Tax credits – Certain states and local governments, including housing finance agencies, issue mortgage credit certificates, which reduce the amount of federal income tax you pay. This makes more money available upfront for your down payment or closing costs.

Frequently Asked Questions

You do not have to be a first-time homebuyer to qualify, because 41 percent of the programs in our database do not have that requirement. Also, it’s important to remember that a first-time homebuyer is defined as someone who hasn’t owned a home in the last three years. So, if you’ve owned a home in the past you could qualify if you’ve been renting for a while and you may be a first-timer again!

Both you and the home you are purchasing have to be eligible. You’ll need to be an owner-occupant, and can’t use this program for an investment property. You’ll need to go through homebuyer education and make a minimum investment. You also have to qualify for a first mortgage. Your homeownership history, income, and the sales price of your dream home will all matter.

What you do for a living can help, since educators, healthcare workers, veterans, and some other groups can get separate programs or additional benefits.

  • Down payment assistance programs make it easier to get a loan if you have enough income but you do not have a down payment. This assistance varies and could be grants, interest-free loans, or low-interest loans. Federal loan programs like FHA can mean a much smaller down payment is required (usually just 3.5 percent). Many down-payment assistance programs may also be offered to homebuyers as a second, silent mortgage, and they are only repaid when the mortgage is paid off or the home is sold.

Before choosing any type of loan, it’s important that consumers consider what the repayment schedule for the loan will really be, and whether it’s compatible with long-term financial or life goals. Most consumers know to avoid subprime loans because of their risky nature, but determining which loan or program may be the right option can be difficult. Down payment assistance programs are versatile, meaning that assistance may come in the form of a grant or low-interest loan, but they’re also subject to change significantly, so it’s essential that homebuyers do their homework and take the guesswork out of the equation before committing to any conditions.

The real estate market is constantly changing, but often times, it is more cost-efficient to buy a home rather than rent one. Think about it. When you buy, you are investing in your own future. When you rent, you are helping your landlord to invest in his or her future! There also are financial perks like tax deductions and home equity that come along with owning a home.

When a first-time homebuyer is looking to purchase a home, it is important to realize that a monthly mortgage payment does not cover all of the monthly expenses that go along with homeownership. Often times, a monthly mortgage payment covers the principal amount borrowed, homeowners insurance, property taxes, interest fees and PMI, if applicable. Monthly mortgage payments do not cover things like utilities, cable and internet service or homeowners association fees.

PMI or private mortgage insurance is something that lenders use to protect themselves against a buyer who defaults on their home loan. PMI is money a buyer pays along with their principal and interest to reimburse a lender in case they default. This fee is usually lumped into a buyer’s monthly mortgage payment until about 80% of their home is paid off, at which point PMI is typically cancelled.

After buyers and sellers agree on a home’s price, the closing process begins and it typically lasts between 30-60 days. During this time, the purchase contract is drawn up and signed, financial documents are finalized, home inspections and appraisals are completed and various other legalities are handled, too. On closing day, both buying and selling parties meet (often for the very first time!) to sign final documents and hand over the keys!

Are you eligible for down payment assistance?

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