Down Payment Assistance Programs: How They Can Help You Buy a Home
What is Down Payment Assistance?
First-Time Home Buyers Programs
How Does Down Payment Assistance Work?
Types of Down Payment Assistance
Forgivable Loans (At Zero Interest)
Deferred-Payment Loans (At Zero Interest)
Zero Down-Payment Loans for Non-First Time Homebuyers
How long does it take to get approved for a down payment program?
If you are considering buying a home but need assistance, you have come to the right place. What you will learn today:
Thinking of buying a home but worried you don’t have enough down payment? Here’s the good news, there are lots of programs out there that can help you get into the home of your dreams. Let’s look at down payment assistance, how it works, and the different types of programs available to you.
When you buy a home with a mortgage, you’ll usually need to bring a percentage of your own money as a percentage of the purchase price. This is called a down payment. The amount you’ll need will vary depending on the program, while some will require very little or nothing from your personal funds. Coming up with your down payment can be difficult for some; that’s why “down payment assistance” is available. How much is available depends on the program. Some programs offer a percentage of the home’s price, while others cap the assistance to a specific dollar amount. Researching and getting with your Loan Officer for guidance is essential here.
Depending on the program, the definition of who qualifies as a first-time home buyer is different. If you have not been a homeowner in the last three years, most state, federal and non-profit programs consider you a first-time buyer. You can’t own any other residential property such as a rental or something that would be considered a second home.
Down payment assistance comes in many forms; some are grants, some are forgivable loans, and other types of structures. Down payment assistance is typically reserved for first-time home buyers only. There are different types of FHA loans that do not require one. Your household income and credit history determine eligibility. Eligibility can vary depending on the program. The mortgage application process is standard, with some programs requiring you to attend a first-time home buyer education on mortgages, homeownership, and managing your finances.Part of the requirements might also be that you live in the house you purchase for a certain number of years.
This type of loan is a government-backed mortgage insured by the Federal Housing Administration. FHA home loans allow for a lower minimum credit score when compared to most conventional loans, making them perfect for a first-time home buyer who may have less than excellent credit or a higher debt ratio. The government is the sponsor of the program, but they are underwritten and originated by private mortgage companies.
Standard FHA loans lend up to 97.5% of a home, requiring only 3.5% as a down payment that can come from many sources. For example, it can come from your savings, a family gift, or first-time home buyer programs discussed in this article. Since the program allows for lower credit scores and higher debt ratios than most programs, expect to pay a form of mortgage insurance as part of your monthly mortgage payment.
Many assistance programs come in the form of a buyer grant or loan offered at the state and local levels. Still, other private mortgage programs can help with your down payment.
This type of assistance provides money to the homebuyer that never has to be paid; it’s considered a gift. There are many restrictions to this type of assistance, so make sure you understand all the terms that come along with this type of program.
This type of program is a second mortgage that you won’t have to pay back as long as you stay in the home for several years. These loans come with a 0% interest rate. Lenders will forgive, meaning you don’t have to pay it back, after a certain number of years. The number of years can vary, typically 5, but that period can be as long as 20 years with specific programs. This means that if you sell or refinance your home before the period ends, you will need to pay back the loan with your refinance or from the proceeds of the sale.
These types of programs are a second mortgage on your home that do not require payment. In the future, if you refinance or sell your home, you will need to pay back the original amount of the loan but without any interest due. In other words, this loan is not forgiven.
These loans are usually offered by private lenders using an FHA program. The program creates a second mortgage that covers the difference between your first mortgage and the purchase price of the home; in other words, 100% financing. You do need to make a payment on the second mortgage and will need to pay it off if you refinance or sell in the future. The good news about this type of program is there are restrictions on who qualifies.
| Program Name | Who is Eligible? | Type of Help | Homebuyer commitment |
| Good Neighbor Next Door | Law enforcement, teachers (pre-k to 12th grade), firefighters, and emergency medical techs. | 50% from the list price of the home | Live in the property for 36 months |
| Downpayment Towards Equity Act | Underserved homebuyers | $20,000 to $25,000 depending on the buyer | Live in the property for 5 years |
| National Homebuyers Fund | Homebuyers | Down payment and/or closing cost up 5% of the mortgage loan amount | Check with your loan officer |
| FHA Loans | First-time homebuyers and repeat home buyers can buy or refinance a home | 580 Credit score and 3.5% down payment | Check with your loan officer |
This always depends on which program you are applying for. Since many of these are state and local programs, the process can move at different speeds. Another thing to consider is that these programs are typically funded to a certain level and can be exhausted (not available) for specific periods during a year.
It depends on the program, but in most cases, the lender will look at your credit score and income to calculate your debt-to-income ratio and the area you want to buy.
Other common requirements depending on the program:
Before considering how much money you need for a down payment or whether you’ll need assistance, start the process by getting pre-approved for your mortgage. This way, you know how much house you can afford and qualify for. It’s possible to buy a home with as little as 3% of the purchase price as a down payment. If you need help with the down payment, some programs can help, or even getting a gift from a family member is sometimes acceptable.
If you are ready to start your home buying journey, get pre-approved and become educated on what you can afford.
