Buying a home is expensive. There are plenty of different fees homebuyers need to deal with in the process. Generally, one expense is the down payment. A down payment is defined as a sum of money that a buyer will pay in the beginning stages of a purchase. However, in terms of buying a home specifically, it refers to a sum of money that a homebuyer will pay in the beginning stages of the home purchase.
The down payment is worth a part of the overall purchase price. The down payment is paid upfront and any remaining balance is what the mortgage accounts for. The exact amount of money you will need to provide varies depending on a variety of factors. Luckily, there are support opportunities available that can help those who need to deal with this cost!
Your Guide to Down Payment Assistance
Many people don’t realize just how many different down payment assistance options are out there. However, these opportunities can make a world of difference when it comes to purchasing a home!
Different Types of Down Payment Assistance
There are plenty of down payment assistance opportunities out there that you can consider. Some opportunities include:
- Grants
- Forgivable Mortgage Loans
- Deferred-Payment Loans
- Low-Interest Loans
- Matched Savings Programs
Grants
One of the most wanted forms of down payment assistance is a grant. This is due to the fact that the financial support that grants provide never has to be repaid (which means it’s considered a gift). That’s right, there are grants that provide funds to homebuyers that act like free money! However, it is very important to keep in mind that not every down payment opportunity is the same. There are instances where the organization providing the grant will make a second lien on your house. That is why it is important to take your time going over the terms and conditions when accepting down payment assistance. This will ensure that you know what you’re getting into and the type of assistance you are receiving!
Forgivable Mortgage Loans
These loans are a type of second mortgage. However, they will not require repayment as long as the homebuyer lives in the property for a specific timeframe. Besides not needing repayment (as long as terms are met), another benefit of this type of mortgage is the fact that it has an interest rate of 0%! Generally, lenders will forgive this loan after five years, which means the borrower will not need to repay anything back. However, each lender is different, so required timeframes can be larger than that! The funds that you get from this loan generally are able to cover the entire cost of the down payment.
Deferred-Payment Loans
Another loan opportunity to consider for down payment assistance is a deferred-payment loan. Which, you guessed it, allows deferred payments! That means the borrower will not have to repay the second loan until they either:
- Move
- Sell the property
- Refinance the first mortgage
- Pay down the first loan
People usually repay these loans with the money they get from selling their property.
Low-Interest Loans
When finalizing your first mortgage, you may be given the opportunity to take out a second mortgage loan by your lender, an organization, etc. The funds from the second loan can go towards handling your down payment. While this type of loan needs to be repaid every month, the benefit is that it can have a low-interest rate (or even no interest rate!).
Matched Savings Programs
These programs are also known as individual development accounts. Through these programs, homeowners can get support when dealing with their down payment. That’s because homebuyers will be able to put money into an account with either a government agency, community organization or bank. The institution that receives the money will match the amount that the homebuyer deposits. Then, the overall amount (which includes deposits from both the homebuyer and the institution) will go towards the down payment.
Alternatives to the Above Options
While the options we mentioned above are great opportunities for down payment support, there are other options to consider. While the options below may not be down payment assistance exactly, they provide some interesting opportunities that are similar to down payment support! You can consider:
Federal Housing Administration (FHA) Loans
FHA loans are a popular type of loan because it allows down payments as low as 3.5% for those that qualify. This means people could buy a home with a cheaper down payment compared to a conventional loan.
Veterans Affairs (VA) Loans
This type of loan comes with no down payment requirement! The terms of the loan vary depending on the lender. However, there is an opportunity to get a mortgage without needing to provide a down payment at all.
Commonly Asked Questions
Understanding down payments and down payment assistance can be confusing. You may have commonly asked questions!
How Long Will it Take to Get Support for Your Down Payment?
The exact timeframe that you can expect will vary on a number of factors. This includes the type of down payment assistance you’re getting, your loan type, the institution, etc. When reviewing your options, you will want to ask about the source of the down payment assistance. For example, let’s say you are doing a matched savings program with a bank. You will need to account for how long it takes for you to save up half of the money. Then, you will need to account for how long it will take for the bank to deposit their half. Before choosing this program, you will want to talk to the bank to get a clear understanding of the timeline that you may deal with.
How to Qualify for Down Payment Assistance?
We know we may sound like a broken record, but the exact requirements will vary depending on the lender. Some common requirements that you will likely come across include:
- Have an eligible credit score
- Consider your debt-to-income ratio (DTI)
- Live in a home that’s in a specific area
- Attend a financial class about home buying
- Live in the home for a specific period of time
How to Find Available Down Payment Assistance Opportunities?
If you want to find down payment opportunities, there are a few places that you can check out. This includes:
- The United States Department of Housing and Urban Development (HUD)
- Local government agencies
- State government agencies
- Housing counselors that are HUD-approved
Overall
When it comes to buying a home, there are a variety of expenses you need to deal with. One common cost that homebuyers typically need to deal with is a down payment. In terms of buying a home, your down payment refers to a sum of money that’s worth a percentage of the home’s final purchase price. This can be a lot of money which is why people turn to down payment assistance opportunities. Some options to consider include the following:
- Grants
- Forgivable Mortgage Loans
- Deferred-Payment Loans
- Low-Interest Loans
- Matched Savings Programs
Besides these opportunities, individuals may be able to benefit from:
- FHA Loans
- VA Loans
Either way, there may be more opportunities available to help handle your down payment than you realize. You just need to know what’s out there!
