Are you a first-time homebuyer? Are you having trouble coming up with enough money for the down payment on your first home?
If so, you’re not the only one.
Gathering the thousands of dollars that it takes to make a down payment on a home is hard. For first-time homebuyers, it’s even more difficult.
That’s why down payment assistance exists. With more than 2,000 down payment programs across the nation, there’s bound to be one that’ll work for you.
To learn more about down payment assistance and how it can help you as a first-time homebuyer, keep reading.
Down payment assistance programs, or DPA programs, help homebuyers just like you get the money that they need to come up with a down payment. Through loans and grants, you can reduce the amount of money that you have to come up with on your own. Thus, you can save much less than you’ll actually spend on the down payment.
If you qualify for certain kinds of down payment assistance programs, you may be able to get an outright grant. Alternatively, you may receive a loan with little to no interest.
You can put these funds towards your down payment, but some people also apply them towards closing costs.
Most DPA programs are at the local level. However, there are some federal programs.
No matter the program, there are eligibility requirements that you must meet. And, those requirements change from program to program. So, if you don’t meet the requirements of one program, you may meet the requirements of another.
One of the most common requirements is being a first-time homebuyer. This includes individuals who have never owned a home as well as individuals who haven’t owned a home in the past three years.
Along with this requirement, you may have to have a decent credit score and a low-to-moderate income. However, the rules will vary from program to program.
It’s also important to note that many down payment assistant programs work with a list of lenders. So, you may have to pick a lender from a pre-determined list.
While you’re looking at DPA programs, you’ll come across four main types:
Grants are gifted, so you never have to worry about repaying them. On the other hand, loans act as second mortgages that you have to pay back monthly along with your primary mortgage.
Deferred loans are second mortgages that you don’t have to pay back until you move, sell, or refinance.
Lastly, forgivable loans are second mortgages that your lender will forgive after a certain number of years. Usually, they forget the loans after five years but some go as far as 15 or 20 years. You’ll need to repay these loans if you move, sell, or refinance before the period of forgiveness is over.
If you’re looking for a first-time homebuyer program, DPA programs are the way to go.
Along with this requirement, you may find a few others, such as purchase price caps, income caps, and area requirements. Other programs may require you to take homebuyer education courses that teach you about caring for and maintaining the home.
As you’re looking through different programs, you’ll find that each one is unique. The exact criteria that you need to meet will depend on the area in which you’re buying a home.
With that in mind, there are a few very common guidelines for DPA programs:
If you’re unsure about the specific requirements as you’re applying, your approved lender can help you. They’ll let you know the target area of the property along with other requirements.
Since down payment assistance programs are localized, you should focus on finding one in the area where you’re looking to buy. While there are some national and statewide options, it’ll be easier to find local options.
If you already have a loan officer, you can talk to them about options that you have for first-time homebuyer grants or other 1st-time homebuyer programs. Further, they’ll be able to help you determine which DPA programs you can use while working with them.
If you’d rather do research on your own, you can do a quick online search with keywords like “down payment assistance grants in *insert your city*.” You’ll find options like the American Dream Grant.
There are also a few online websites that you should check:
After looking through all of these resources, you’re bound to pull together several programs that’ll allow you to get a first-time homebuyer program with no down payment or little payment.
The amount of down payment assistance that you get will depend on the ZIP code that you’re shopping in. You could get nothing or you could get thousands of dollars.
Depending on your individual factors such as income and credit score, you may be eligible for more or less. The only way to figure out how much you’re going to get is by talking with your lender and applying.
Some first-time homebuyer grants are specifically for closing costs as well as the down payment. Others don’t have specific rules.
You have to do some searching in your local area to see if there are offers near you.
Most down payment assistance programs require that you borrow from specific lenders. At the same time, you have to use an approved mortgage program. This means that you may have to go through a lender and/or mortgage program that you didn’t initially expect.
Luckily, most DPA programs allow consumers to use popular mortgage programs, like these:
DPA programs also allow consumers to borrow conventional loans, including those that are backed by Fannie Mae and Freddie Mac.
Considering all of these options, DPA programs are fairly flexible. The exact details of your program will depend on the area that you’re in.
With a down payment assistance program, you can get a home loan with little to no money down. Some people pay as little as 3% for a down payment.
Since you’ll have a lower down payment, you’ll be able to make a more competitive offer for the home that you want to purchase. So, you may have a better chance of getting the home that you want.
Plus, you can buy a home sooner because you won’t have to save as much money for the home.
You’ll also have a smaller loan amount. Over time, you’ll be paying less on your loan because you’ll have less to pay in interest with a smaller total amount.
A smaller loan amount also means that you’re going to have smaller monthly mortgage payments. You may even be able to finish paying off the loan faster.
All of these benefits are significant in a market that favors buyers who can offer larger down payments. Without DPA programs, low-to-moderate income buyers struggle to compete.
Overall, DPA programs even out the playing field. And, they make it easier for people to get away from wasting money on rent payments.
If the down payment assistance program that you get approved for is forgiving, there are a few drawbacks. Remember, these are the DPA programs that don’t require you to pay anything back unless you move, sell, or refinance before the date of forgiveness passes.
If you do make a change before the date of forgiveness or you need to pay back the money, you may have even more financial stress added to your plate. This is particularly important for low-income buyers to recognize.
A second monthly payment could break the bank for some people.
Ideally, you will have enough income to cover these payments in the future. That’s why DPA loan programs are best for people who are simply having trouble saving money. This may include students who are about to go into their career field.
If income is a problem, you may need to look solely for DPA grant programs so that you don’t have to worry about paying the money back. You could also opt for a forgivable loan DPA as long as you’re going to stick with the same home and the same mortgage for the pre-determined amount of time.
Another big con of down payment assistance programs is their stringent eligibility requirements. Most programs are open to first-time homebuyers, veterans, public servants, low-income buyers, and other special groups.
Keep in mind that the phrase ‘first-time homebuyer’ applies to individuals who have never bought a home as well as people who haven’t owned a home in three years.
You should also keep in mind that DPA programs work on a first-come, first-served basis. So, you should give yourself plenty of time to get the assistance that you need for your home purchase.
DPA programs seem like they’re too good to be true. So, there are dozens of myths about these programs. And, it’s likely that you’ve heard a lot of them.
Before you jump into your own research about these programs, it’s important to debunk these myths so that you understand what you’re getting into.
Myth #1. DPA programs are only for first-time homebuyers.
Truth: If you’re a first-time homebuyer, DPA programs are great. But, there are other options like those for veterans and public servants.
And, if you fall under more than one category, you may be able to get extra special deals for your home purchase.
Myth #2. DPA programs are difficult to qualify for.
Truth: Since there are so many different programs to choose from, there’s bound to be one that you’ll qualify for. Yes, some programs require specific incomes or credit score requirements, but they are to prove that you’re financially responsible.
And, there may be programs that require homeowner education so that you’ll have long-term success as a new homeowner.
Myth #3: DPA programs aren’t funded anymore.
Truth: There is plenty of funding for down payment assistance programs. Some are funded by the government, some are funded by agencies, and some are privately funded. Some employers sponsor programs, too.
All in all, there is plenty of funding for all sorts of DPA programs. So, you don’t have to worry about your chosen DPA running out of funding.
Myth #4: DPA programs make mortgage financing more difficult.
Truth: DPA programs work to make financing easier. One of the most common issues with homebuyers is getting a down payment together.
By helping with funding, DPA programs are making it easier for the average person to get the funding that they need to get a house. Plus, you’ll have support from your mortgage lender as you navigate the program.
If you’re interested in a down payment assistance program, you can get started today. All you need to do is apply with our team at Marketplace Mortgage. We can help you find the right DAP program for you and get you started on the road to your very own home.
Plus, we have all of the information that you need about your mortgage and down payment assistance program.
So, come talk to the experts and start collecting money for your down payment. You’ll be ready to buy a new home in no time.