It’s no secret that grants are available to help you purchase a home are available. In fact, homebuyers can get down payment assistance (DPA) in thousands of locations, which helps them save on money they’d otherwise need for down payments. Many of these programs are run by the state, county, or city governments, so DPA programs are different depending on where you live. Fortunately, most home buyers may be eligible for thousands of dollars in downpayment assistance if they meet the requirements.
How does down payment assistance work?
Programs that provide down payment assistance (DPA), help home buyers to get loans or grants to reduce the amount they have to save for a downpayment. If you’re eligible, you may be awarded with a grant or a loan with low or no interest to pay your down payment. You can also use some DPA funds to cover closing costs. DPAs often require you to be a first-time buyer of a home. This means you must have a good credit score, a moderate income and a decent credit rating. These rules may not apply to all DPAs.
Most DPA programs can be offered at the local level, therefore eligibility requirements can vary between programs. You should also be aware that DPA programs often use a list containing ‘participating lenders’, meaning you’ll need to select a lender approved by your program to obtain the benefit.
Different kinds of down payment assistance
There are four types of down payment assistance.
- Grants – Gifted cash that doesn’t have to be paid back
- Loans – A second mortgage which will be paid monthly in addition to your first mortgage.
- Forgivable loans – A second mortgage that can be forgiven after a certain number of years, usually five but sometimes up to twenty.
- Deferred loans – Second mortgages that have deferred payments which become due when you sell, move out, or refinance.
Certain DPA loans can be interest-free and may even have lower rates than your first mortgage. Others require an equal rate or higher.
Who’s eligible for down payment assistance programs?
Programs to help with down payments are usually for first-time buyers. Other requirements can include maximum income, maximum home purchase prices, and qualifying geographic areas. Sometimes DPA programs require homebuyers to take educational classes.
Each down payment assistance program differs in the required criteria, depending on where you live and which programs you’re eligible for. Nonetheless, many feature the same guidelines for DPA approval:
- Applicant requirement to be a first-time homebuyer.
- Applicants required to have a low- or moderate-income.
- Location requirements inside “targeted census tract”.
- Primary residences only.
- Qualified and approved mortgage lenders only.
- Qualified and approved mortgage programs only.
What mortgage programs are eligible for down payment assistance?
Nearly all down payment assistance programs require that you use an approved lender, and it’s possible that you will need to sign up for a specific mortgage program. Today’s widely-available loan programs are often accommodated, including:
- FHA Home Loans (guaranteed by the Federal Housing Administration).
- VA Home Loans (guaranteed by Department of Veterans Affairs).
- USDA Home Loans (guaranteed by the U.S. Department of Agriculture).
- Conventional Home Loans (not guaranteed by a government agency)
