Down Payment Assistance: What It Is and How to Qualify

What is Down Payment Assistance

What is Down Payment Assistance?

Down payment assistance helps to cover a down payment for a first-time home buyer. This assistance comes in the form of grants, loans, or other programs and can be through a government agency or private organization. These organizations include local and state housing authorities or non-profits.

What are the Different Types of Down Payment Assistance?

There are some options with types of down payment assistance. It’s important to consider your finances and specific situation when choosing the right type of assistance program. Sometimes mortgage lenders will offer their own type of down payment assistance, but here are the five most common types of assistance you will encounter.

Grants

Grants are considered to be the most valuable, since these are considered a gift. That means you won’t have to repay any of the money that was gifted to you for your down payment. This can also be in the form of a parent helping a child buy a home with a gift toward the down payment.

Forgivable Loans

Forgivable loans are like a second mortgage. You won’t have to repay this type of loan if you stay in your home for a set amount of years as determined by the loan.

Deferred Payment Loan

A deferred payment loan is not forgiven. You must repay the loan if you leave the home or repay when you move, sell the home, refinance your first mortgage, or pay down your first loan.

Low Interest Loan

A low interest loan is a second mortgage that covers your down payment. You must repay this type of loan each month, meaning that you will end up having two mortgage payments.

Matched Savings Program

Finally, a matched savings program deposits money into an account with a bank, government agency, or community organization. That institute then matches whatever you deposit to help with your down payment. 

How Can You Qualify for Down Payment Assistance?

To qualify, you must be a first time homebuyer. That means this needs to be your first time ever buying a home or that you haven’t had homeownership in the last three years. You also can’t own a rental or investment property.

Some specific programs will require their own set of rules. For example, some programs are geared towards people like teachers, police officers, emergency workers, or city employees. Other times, you may have to take a homebuyer education course, meet income requirements, purchase in a certain area, stay below a certain home purchase price, and/or contribute some of your own money towards the down payment.

What Mortgages Can Down Payment Assistance Help With?

All kinds of mortgages can use down payment assistance. Individual lenders typically have their own requirements, so it’s important to talk to them if you will be going that route. Typically, government mortgages like FHA loans, VA loans, and USDA loans have their own built in down payment assistance. You can also apply for assistance with conventional mortgages.

How Can You Find a Down Payment Assistance Program?

There are a few different places that you can check to find a program that will meet your needs. Check your state’s housing finance authority or your city and county governments. You can also visit the United States Department of Housing and Urban Development’s website and select your state to see a list of programs. There are also HUD-approved housing counselors, and many websites themselves offer tools to help you in finding down payment assistance in your area.

How Do You Apply For Down Payment Assistance?

Once you’ve selected a program, you’ll need to go to their website and learn about their requirements and approved mortgage lenders. Then, using an approved mortgage lender to can work with the grant program, apply for the mortgage.

The Next Steps

After you’ve considered your options for the type of assistance that works best for you, you may be wondering how much money you’ll truly get. Different programs will give you different amounts. You’ll need to apply for loans and programs to see how much they’ll be able to help you. Eligibility for many programs is determined by your household income and credit history.

Conclusion

Down payment assistance can be a great way to get some support on your down payment and make your dreams of becoming a homeowner come true. Look at different loans and programs and find the one that will best support you.

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