"A Guide to Down Payment Assistance: Making Homeownership Possible"
One-fifth of aspiring homeowners believe they’ll never be able to save enough for a down payment, according to Bankrate’s Down Payment Survey. However, buying a home doesn’t have to rely solely on savings. There are numerous down payment assistance programs available to help bridge the gap.
Here’s a guide to understanding these programs and how to qualify for them.
What Is a Down Payment Assistance Program?
Down payment assistance (DPA) programs offer loans and grants to help homebuyers cover their down payment and, in some cases, closing costs. While a few federal programs exist, most assistance comes from state, county, and city governments.
For example, the Illinois Housing Development Authority (IHDA) Access Mortgage program provides up to $10,000 for eligible buyers, while California’s MyHome Assistance Program offers a deferred-payment second mortgage covering up to 3% of the home’s purchase price.
Down Payment Assistance Eligibility Requirements
Most DPA programs are geared toward first-time homebuyers, defined as individuals who haven’t owned a home in the past three years. Other common requirements include:
- Purchasing a primary residence (not an investment or rental property)
- Buying a single-family home, condo, or townhome (multi-family properties are often limited to four units)
- Having an income below the area median income (AMI)
- Buying in a specific location or working in a public service profession
- Qualifying for a 30-year, fixed-rate mortgage (some programs are limited to specific loan types)
- Meeting credit and financial criteria beyond lender requirements
- Completing a homebuyer education course
If using a state housing finance agency (HFA) program, buyers must secure their mortgage through a partner lender.
Types of Down Payment Assistance Programs
Grants
Grants provide a one-time sum that doesn’t need to be repaid. This is often in the form of a no-interest second mortgage, covering some or all of the down payment and closing costs.
Forgivable Loans
Forgivable loans act as second mortgages but don’t require repayment if the homeowner meets specific conditions, such as staying in the home for a set number of years. The loan balance is typically forgiven incrementally over three to ten years.
Low-Interest Loans
These second mortgages come with lower interest rates, making repayment more affordable. The buyer must make monthly payments in addition to their first mortgage.
Deferred-Payment Loans
Deferred-payment loans charge no interest but must be repaid when the home is sold, refinanced, or the loan term ends.
Individual Development Accounts (IDAs)
Also known as matched savings accounts, IDAs match a buyer’s contributions with public or private funds. They often come with income caps and education requirements.
Lender Down Payment Assistance Programs
Some mortgage lenders offer their own assistance programs, including grants and matched savings. However, these typically require the homebuyer to obtain their mortgage through that lender, which may not always offer the lowest interest rates.
How to Find Down Payment Assistance
To explore DPA options, consider the following resources:
- State Housing Finance Agencies (HFAs): Each state has an HFA that administers assistance programs.
- City or County Programs: Many municipalities offer local assistance.
- HUD: The U.S. Department of Housing and Urban Development provides a state-by-state homebuyer program directory.
- Lenders: Mortgage lenders can recommend relevant programs.
- Down Payment Resource: This private organization offers an online tool to check eligibility and find assistance programs.
FAQs About Down Payment Assistance
What mortgages can down payment assistance be applied to?
DPA can be used for various loan types, including conventional, FHA, VA, and USDA loans. Some programs have restrictions, so check with your lender.
How long does it take to receive assistance?
Timelines vary widely. It’s best to start researching and applying early in the homebuying process.
What are alternatives to down payment assistance?
Alternatives include HUD’s homeownership resources, foreclosure prevention programs, and utility assistance. Visit HUD.gov/states for more information.
Can I use multiple sources of down payment assistance?
Yes, provided the mortgage program allows it. Check with your lender to confirm eligibility.
What are the benefits of down payment assistance programs?
DPA programs promote homeownership, increasing financial stability and wealth-building opportunities for individuals and communities.
What are the drawbacks?
Some programs have strict eligibility requirements, and loan-based assistance can result in higher overall costs. Others require homeowners to stay in the home for a set period.
Key Takeaways
- Down payment assistance programs help cover down payment and closing costs through grants or loans.
- Eligibility often depends on first-time homebuyer status and income levels.
- Many DPA programs are available through state housing finance agencies, local governments, and lenders.
- Homebuyers should research programs early and confirm eligibility with their lender.
By leveraging down payment assistance, homeownership can become a reality sooner than expected. If you’re unsure where to start, consult a real estate professional or mortgage lender to explore your options