Down Payment Assistance programs help first time homebuyers with loans or grants to reduce the amount they need to save for a down payment. For instance, there are over a thousand of these programs nationwide. The programs are run by state, county or city governments. Due to the different sources of funds these programs may vary by location. Therefore, if you are planning to purchase you need to learn about what is available in your area, requirements and if it is the right choice for you and your family.
Down-Payment Assistance Terms
Most of these programs are interest free. They can be given in a form of a grant or loan. The buyer have to meet the guidelines and follow the requirements of the programs. Let’s define some terms related to the down payment assistance. A grant is a gift with no repayable obligation.
On the other hand, a loan is a form of a second mortgage. Depending on the program guidelines it could be a loan paid down alongside with your first mortgage or a loan with deferred payments where you are required to repay if you sell, move or refinance to cash out equity on your property.
Another type of loan is a silent second mortgage is often a five, 10, or 15 year loan that is forgiven over the years and only requires repayment if you sell, move, rent, or refinance your home before the term established.
Facts to Know
These programs will consider you a “first time homebuyer” as long as you are free of a property deed for the past three years. In addition, they might require you meet the programs guidelines, your ability to qualify through a lender, your household income and size, your financial status, a minimum FICO score which is typically 640. Furthermore, they will require at least some funds of your own.
Also consider, they will request you attend a Homebuyers Class from a US Department Housing and Urban Development (HUD) Approved Counseling Agency. You will receive a Certificate of Completion stating you completed a minimum of an eight hours class.
Who qualifies and what type of loans are acceptable?
Keep in mind every down payment assistance program is different. Some will have income caps or might require the home be located in certain areas within a certain price range. To qualify it will depend on where you live and what programs are available in your area. In addition, the applicant should qualify based on income level; the home use is as a primary residence not as an investment. The down-payment assistance is used along with an approved mortgage program.
Almost all programs require you to borrow from approved lenders which are participating in an approved mortgage program. Most common loan programs such as FHA loans, VA loans, USDA loans and also conventional loans are allowed. Private mortgages, referring to a direct purchase funded by a private source, in most cases, will not be eligible for these government programs. Check your local websites for specific details.
Remember when buying a home, there are a lot of steps in the process. Without doubt there are also many costs involved and down payment assistance programs can help you. All programs have guidelines to follow and requirements to fulfill. Plan your short and long term goals when planning to purchase a home. Determine if assistance is a major factor to make that decision. Always remember you need to know the facts and what works for you.