How Does Down Payment Assistance Work
This guide will cover how down payment assistance works for homebuyers. Homeownership is a dream for many Americans, but the reality is that saving for a down payment, which is crucial if you are to secure a mortgage, can be daunting.
With home prices rising and wages often needing to catch up, saving tens of thousands of dollars for a down payment can seem impossible. Fortunately, several down payment assistance programs are available to help make your lifelong dream of owning a home a reality.
Down payment assistance programs are what we are going to explore today by telling you what they are, how they work, and who is eligible for them. Read through to learn more.
What Is Down Payment Assistance For Homebuyers?
What is down payment assistance? When buying a home, you put down an amount equal to a specified percentage of the property’s final price. This amount is referred to as a down payment. Christian Sorensen of Equity Prime Mortgage said the following about EPMs Down Payment Assistance Program:
Down payment assistance helps you to cover this payment, especially for a first-time buyer. The down payment amount varies with the lender and the type of mortgage you are applying for, especially given that there are some mortgage programs for which you might not require a down payment.
Raising the amount needed can be a bit challenging for many prospective homebuyers, especially first-time buyers, and this is what informed the establishment of down payment assistance.
Down Payment Assistance Eligibility Requirements
Who qualifies for down payment assistance? The one who qualifies for down payment assistance varies with the specific mortgage loan you are applying for and the provider. Here is what Alex Carlucci of Non-QM Mortgage Brokers said about down payment assistance mortgage programs:
By understanding everything about these assistance programs, you can make a more informed decision about your home financing, where you can now take advantage of your available resources. Happy Investing!
Some general requirements are standard among many programs. Down payment assistance programs are mainly for first-time homebuyer buyers.
First-Time Homebuyers Down Payment Assistance Programs
The down payment assistance programs are targeted mainly toward first-time homebuyers, although some programs could also be available to repeat buyers. Some programs come with specific income requirements, with some targeting low to moderate-income families. Here is the definition of a first-time homebuyer:
Most down payment assistance programs are for first time homebuyers. A first-time homebuyer is a homebuyer who has had no ownership in a home for the past three years.
Some down payment assistance mortgage programs come with credit score requirements, which can vary depending on the type of program. However, a higher credit score is needed to qualify for assistance.
Down Payment Assistance Mortgage Guidelines
Other factors you may need to consider include the property’s location, the down payment size, and the borrower’s debt-to-income ratio. Dale Elenteny of Non-QM Mortgage Brokers said the following about down payment assistance mortgage programs:
Other than the above mentioned requirements, there could be other requirements based on the provider, such as completing or meeting specific residency requirements. Overall, know all these requirements vary based on the type of mortgage you are applying for and the lender you are using.
Do your research properly or speak to a qualified mortgage professional to determine the programs that you may be eligible for.
How Does Down Payment Assistance Mortgage Programs Work?
Down payment assistance programs typically provide financial assistance to first-time homebuyers, specifically for the down payment or closing costs associated with purchasing a property. This assistance can take various forms, including grants, low-interest loans, forgivable loans, or direct financial aid.
When a borrower applies for the assistance program, there are a few requirements they need to meet. If all the requirements are met, one can proceed with the application process, where you submit all the required documentation. If you are approved and have received the necessary funds, you just now need to use those funds to cover your down payment or closing costs.
You may also find some programs offering home-buying advice to ensure you are fully prepared for homeownership. Some programs come with a few conditions, such as for the buyer to use the specific home as the primary residence or maintain it in good condition. In contrast, others may require to remain in the property for some time before selling. So, when it comes to how down payment assistance works, it all depends on the type of assistance program you get or the lender.
Types of Down Payment Assistance Programs
There are several down payment assistance programs, all of which are being offered at the state and local levels. Some of the most common types include the following;
Grants
This is the most valuable form of down payment assistance, thanks to the fact that they provide money that the borrowers never have to repay, as it is considered a gift.
It is crucial to note that the lenders might label some programs as grants but might create a second lien on your home. While this may not necessarily be a bad thing, it is important to be aware of such information to know what you are getting yourself into.
Review all the terms carefully, and ensure the lender knows it is a grant to avoid future disagreements.
Forgivable Down Payment Assistance Mortgage Loans
You won’t have to repay these loans if you meet certain requirements, such as remaining in the specific property for a specified period as your primary residence. The loan is structured so that a specific percentage is forgiven yearly over the specified period. Non-QM Mortgage Brokers are experts in down payment assistance mortgage programs.
If a borrower gets a $10,000 forgivable loan as a down payment assistance, the loan may be structured so that 20% of the loan will be forgiven every year for over five years. But for this to happen, the borrower must continue occupying the home as their primary residence. If you were to move before this period ends, you would have to repay either a portion or the entire loan.
Non-QM Mortgage Brokers offer a non-forgivable down payment assistance mortgage loan program for first-time homebuyers and first responders. It is forgivable after six months. It is an FHA loan program that requires a 620 credit score.
Deferred-Payment Down Payment Assistance Mortgage Programs
Once you get this loan, you don't have to repay for quite some time, which can even be years, but that is until you move, sell, or refinance the property or until after you have finished paying the first loan. Dale Elenteny of Non-QM Mortgage Brokers explains the deferred-payment DPA Mortgage Program as follows:
Deferred-Payment Down Payment Assistance Mortgage loans are never forgiven. In most cases, the borrowers are required to make repayments if they ever leave and sell the home, where they use the sale proceeds to cover the repayment.
When accepting this loan, you must review the terms and conditions of the loan before accepting it. You need to be aware of the interest rates, if any, and any fees associated with the loan, not to mention the length of the deferred-payment period. By understanding all these terms and conditions, at least you can understand whether these loans are ideal.
Low-Interest Down Payment Assistance Loans
Your lender also offers you the opportunity to take out a second loan while you are applying for the first loan, where you use the first of the second loan to cover the down payment required for the first mortgage.
But before worrying too much about how much you can get for your down payment, you first need to get a pre-approval mortgage. After that, it is essential to carefully research and understand the specific requirements and restrictions of any down payment assistance program before applying.
You will need to repay this loan as you are paying the first mortgage, meaning you will make two mortgage repayments. However, with this second loan, you will get it at a very low-interest rate, whereas some lenders will give you the loan interest-free.
Matched Savings Down Payment Assistance Mortgage Programs
This is the other way for borrowers to get help paying their down payments. Also known as individual development accounts, matched saving programs require borrowers to deposit money into an account with a bank, a government agency, or a community organization. The institution you use then agrees to match the buyer’s deposit amount, which is the fund they can use to cover their down payments. Mike McCue of Non-QM Mortgage Brokers explains how to apply for the down payment assistance.
It is a straightforward process! However, it varies from lender to lender. Now, you start by researching the available assistance programs in your state. Then visit the websites of the loan providers in the state and search for information on how to apply. You can also contact them via phone or email if you need any questions answered.
As we conclude, down payment assistance programs can be a valuable resource for individuals and families looking to achieve the dream of homeownership but may need help to save up for a down payment or closing costs.
