Getting Your Dream Home with Down Payment Assistance

There are many costs associated with buying a home. One of the biggest ones that buyers deal with is a down payment. When purchasing a house, a down payment is a lump sum of money that a homebuyer will pay at the beginning stages of the buying process. The amount that the down payment is worth is a portion of the total purchase price of the home. Any remaining balance after the downpayment is what will be financed through the mortgage. How much you should put towards your down payment will vary depending on plenty of factors like the home’s purchase price, your credit score, the type of loan, etc.

Down Payment Assistance Opportunities

Homes are expensive. Since a down payment is a portion of the overall home price, it can be a lot of money. Homebuyers should expect to provide thousands upon thousands of dollars towards the down payment alone. Not everyone will be able to give this money upfront.

Options to Consider

Luckily, there are down payment assistance options! Some options to consider include the following:

  • Down Payment Grants
  • Forgivable Mortgage Loans
  • Low-Interest Loans
  • Deferred-Payment Loans
  • Matched Savings Programs

Down Payment Grants

This is one of the most popular types of assistance regarding down payments. That’s because grants do not need to be repaid (which is why they can be considered as a gift). Homebuyers can basically view this type of support as free money. However, don’t get excited yet. The specific down payment assistance grant support opportunity will vary depending on the source.

Depending on the organization, homebuyers may have to take a second lien on their house. Since the terms and conditions can vary, it’s important to have a deep understanding of the assistance before you accept it.

Forgivable Mortgage Loans

Another beneficial down payment support opportunity is a forgivable mortgage. This type of home loan is a second mortgage. What’s special about these loans? They will not need any sort of repayment as long as the homebuyer actually lives on the property for a certain amount of time. Besides this benefit, another pro is the fact that the mortgage has an interest rate of 0%.

Since these are forgivable mortgages, lenders will typically forgive this loan amount once five years have passed. Once this loan is forgiven, the homebuyer will officially not have to deal with any sort of repayment! Keep in mind that the lenders that offer these loans will have their own terms and conditions. This means the specific details of this loan will vary so make sure to speak directly with your lender about any questions you may have about this option.

Low-Interest Loans

Oftentimes, homebuyers will need to consider an additional loan to handle the cost of their down payment. However, the loan can have benefits like a low-interest rate. It’s like a normal loan that needs a monthly repayment but can have a better interest rate than other loan alternatives!

Deferred-Payment Loans

Another popular loan that people use towards financing a down payment is a deferred-payment loan. This type of loan allows homebuyers the chance to defer their payments. They can do this until they do one of the following:

  • Sell the home
  • Move out of the home
  • Refinance their first mortgage
  • Pay down their first mortgage

Matched Savings Programs

You may have heard about matched savings programs if you have heard about individual development accounts. These accounts allow the homebuyer to put in money to save. The amount of money saved can go towards their down payment. What’s special about these accounts is how they work. The number of funds that homebuyers deposit will then be matched by the institution that hosts the account. Institutions can include a government agency, bank, community organization, etc. The amount that they will match will vary depending on where you have your account.

What Else Can You Consider?

The opportunities mentioned previously are great options to consider. However, you may be able to find support from different financing options. That’s because loans like an FHA loan or a VA loan can come with flexible down payment requirements.

FHA Loans

This is a popular financing opportunity because it has low down payment requirements. Homebuyers who use this type of loan can provide a down payment as low as 3.5%. This means that homebuyers can pay less towards their down payment compared to a standard mortgage.

VA Loans

Veterans have done a lot for their country. That is why they can benefit from a variety of support opportunities. One type of support, in particular, are VA home loans. These mortgages don’t come with a down payment requirement. While lenders can impose a down payment requirement, the loan itself has no requirement, so there are many lenders that allow a $0 down payment!

Frequently Asked Questions (FAQs)

When learning about different down payment assistance opportunities, you may find that you have some questions. Luckily, there are FAQs that other people have had that you may have, too!

When Can You Expect to Get Down Payment Assistance?

We know we may sound like a broken record but the specified timeframe will vary depending on factors like your lender, type of mortgage, and more. The best thing you can do is learn about your options in-depth. Let’s say your lender offers a forgivable loan. You will want to ask them about the timelines associated with the loan forgiveness, as well as any terms that you need to be aware of. Doing this with each option can help you better understand all your options and any relevant timeframes.

Who is Eligible for Down Payment Support?

While the specific requirements will be different based on the lender, you can expect some general requirements that you will need to meet. These general requirements include the following:

  • Have a qualifying credit score
  • Have an eligible debt-to-income ratio (DTI)
  • Take part in a home-buying class
  • Reside in the home for a certain timeframe
  • Have the property be located in a certain area

However, it’s important to remember that not all down payment assistance will look at these requirements. For example, a local organization that provides a down payment assistance grant may not care about your credit score or DTI. It just depends!

Where Can You Find Down Payment Support?

There are plenty of common resources for down payment support. The following options are worth considering:

  • Local or state government agencies
  • The United States Department of Housing and Urban Development (HUD)
  • Housing counselors

Bottom Line

Purchasing a house is expensive. One cost that you can expect to deal with is a down payment. However, there are support options out there when it comes to this expense. The following assistance opportunities can help people handle their down payment:

  • Down Payment Grants
  • Forgivable Mortgage Loans
  • Low-Interest Loans
  • Deferred-Payment Loans
  • Matched Savings Programs

Besides these options, the type of mortgage that you get can also make a difference when it comes to your down payment. The following two options come with low or no down payment requirements:

  • FHA loan (Minimum down payment requirement of 3.5%)
  • VA loan (No minimum down payment requirement)

You have a lot of options out there that may be able to help, you just need to know where to look.