Buying the home of your dreams in this economy is no easy decision. Home prices are at their all-time high, and saving for a down payment is a real challenge for most people struggling to make ends meet. Many Americans still mistakenly believe they should save up as much as a 20% down payment just to stand a chance of buying their dream home.
In reality, various down payment assistance programs offer ways to help prospective homebuyers afford their dream homes. These programs, funded by federal, state, and local governments and private non-profit organizations, offer affordable loans to help would-be homeowners afford the down payment for their dream homes.
If you are looking for help buying a home, here are five things you need to know about down payment assistance programs.
1. How Do Down Payment Assistance Programs Work?
Down payment assistance is a special program developed to help people looking to buy a home who face the financial challenge of raising the required down payment. Qualifying applicants receive the down payment assistance funds as a grant for the down payment of their home and any associated costs.
Some programs require applicants to make a minimum contribution towards the down payment. The minimum amount the buyer is required to raise varies with programs and the agencies providing down payment assistance.
2. Who Qualifies for the Down Payment Assistance Program?
Down payment assistance programs are typically available for first-time homebuyers with low to medium income. Different assistance programs and states have different eligibility requirements. Typically, a prospective homebuyer who has not owned a home within the past three years during application may qualify for the grant.
Some states have made it easier for people in specific professions (teachers, law enforcement, and healthcare professionals, for example) to apply for the down payment assistance program. Different programs also have varying minimum credit score requirements that applicants must meet.
3. Are There Different Types of Down Payment Assistance Programs?
Down payment assistance programs can be categorized into four major types:
- Grants are funds provided to the homeowner with no requirement to pay back.
- Interest-free loans are loans that the homebuyer must pay back but with no additional costs to the homebuyer.
- Interest-bearing loans are loans extended to qualifying homebuyers that they must pay back with accumulated interest.
- Hybrid loans are forgivable loans that the homebuyer may not be required to pay back provided they occupy the home they buy for a certain period, typically 30 years.
Note that there is often a limit to how much of the required down payment a qualifying homebuyer can receive based on the program and the type of loan or grant applied for.
4. What Types of Homes Qualify for Down Payment Assistance?
The grants and loans provided by down payment assistance programs typically cover single-family residences. These may include houses, condos, or co-ops, provided they are used as the homeowner's primary residence. You cannot apply for down payment assistance for a second home, vacation getaway, or investment property.
There may also be several restrictions on the home's purchase price and loan amounts before it can qualify for down payment assistance. These restrictions vary by program and state, so explore and compare options before applying for down payment assistance.
5. How Do I Find The Right Down Payment Assistance Program?
The United States Department of Housing and Urban Development (HUD) keeps a database of approved counselors advising would-be homebuyers considering applying for down payment assistance. You may also find down payment assistance through credit unions, regional non-profits, local loan officers, or your employer.
Get Started with Down Payment Assistance
Raising the down payment to buy a home does not need to be such a lengthy and costly process of accumulating funds. It is wise to check if you qualify for a loan or grant before you consider other financing options.
Do not believe the myths about down payment assistance programs. You can get started with owning a home the affordable way today by talking to our local loan officers in the Washington DC metro area and beyond to discuss your unique situation.