One of the biggest challenges of purchasing a home is saving up enough money for the down payment. Despite popular belief, there are many down payment assistance options available to the first time home buyer that can help reduce the burden of saving up a large down payment. Down payment assistance, also known as DPA, exists throughout the United States, although the fine details vary by location. If you’re looking to purchase a home, but you’re struggling to meet that down payment requirement, read on! You may learn how to put your goal within reaching distance.
Understanding Down Payments
First and foremost, what is a down payment? When buying a home, a down payment is the amount of money put towards its sale price. Down payments are typically treated as a percentage of the purchase price. So, depending on how much you put down, you can reduce your borrowing amount and have lower monthly payments. Additionally, any required down payment amount is typically determined by the type of mortgage you choose.
How Much Should Your Home Down Payment Be?
After knowing what minimum down payment is necessary to secure the contract and financing, you may want to consider making a higher down payment. Putting down a higher down payment may help reduce your monthly payment and secure an accepted offer on a property, however you must consider if you can afford to make a higher down payment or if it would be better to hold onto those extra funds.
Making a low down payment will increase your monthly payment and can elevate your debt to income levels.
The right down payment is 100% dependent on your financial situation and goals.
Average Down Payment On A House
First time home buyers typically put down roughly 6% of the home value. On a $300,000 home, that’s $18,000. However, there are loan options out there that allow you to put down as little as 3.5%, such as an FHA loan. Keep in mind, the percentage of down payment could be impacted by what the lender is requiring and/or what the seller would accept with the offer.
What is Down Payment Assistance?
As the name suggests, down payment assistance assists first time home buyers in making a down payment on a property. There are numerous down payment assistance options available to first time home buyers.
Who qualifies for down payment assistance?
Despite down payment assistance programs being offered throughout the country, all first time home buyers do not qualify for such assistance. There are various definitions of who qualifies for such assistance and each program may have it’s own unique requirements.
How big of a down payment grant can you get?
Just as there is no one size fits all to how much you should put down on a home, there is not a one size fits all to how much of a down payment grant you can get. Depending on your state, county, or zip code, you may be eligible for more, or less, grant money.
Why are there different programs and different rules?
If you are exploring the down payment assistance programs in greater detail, the first thing that may stand out to you is the number of different programs and rules that exist. Why are there so many options?
The simplest way to explain all the variables is to first recognize there is not a singular government agency that oversees the down payment assistance program. States get involved, but oftentimes, such assistance programs are made on the town level.
Government bodies of specific towns may want to incentivize people to move to their town or city. Such incentives include down payment assistance options. The government is willing to offer down payment assistance as they realize the more people that move to the town, the more economic activity will trickle down, and the long term benefit will be tremendous.
Types of Down Payment Assistance
There are many different types of down payment assistance options. These options include:
Grants are the most sought after down payment assistance option on the market, and for good reason. Grants are essentially free money, the homeowner never needs to repay the money they receive from a down payment assistance grant.
Forgivable Down Payment Assistance
A forgivable mortgage is a type of second mortgage that the homeowner does not need to pay back as long as the homeowner stays in the home for an agreed upon number of years. Lenders will typically forgive these loans after 5 years, but there are of course options on the market that require a much longer forgiveness period.
Some people also qualify for a deferred-payment option on their second mortgage. These mortgages will not need to be repaid until/if the homeowner moves, sells, or refinances their original loan.
Low Interest Bearing Assistance
There are low-interest loans available for first time home buyers to help you cover the cost of the down payment. Once your initial mortgage is finalized, a lender may offer a second, low-interest, mortgage that covers your down payment expense. You can keep the money you were planning on putting down in the bank and you can chip away at paying back this low interest loan over the next few years.
Matched Savings Programs
A matched savings program is when an individual deposits money into a specific savings program, and the institution, bank, government agency, or community agency, matches what was deposited. This money can only be used for the down payment of a house, but it’s a way to reach your down payment requirement or goal in a quicker fashion.
How to Find Down Payment Assistance Programs
Where do you even begin finding down payment assistance programs? The easiest way to find a down payment assistance program in your area is to talk to a local mortgage broker or real estate agency. Generally speaking, these professionals are well educated with what programs exist in their market.
You can also do your own research online. If you’re moving to a specific area, research online and see if the town or county offers any down payment assistance options. You can also call the City Hall of each specific town you’re interested in moving to and see if they are aware of any programs.
Here are some down payment assistance programs to consider:
1. Chenoa Fund
The Chenoa Fund is available throughout the country except New York. This is an affordable housing fund that provides up to 3.5% of down payment assistance for those that qualify.
2. Community Seconds
Community Seconds is approved by Fannie Mae. This assistance program allows qualified homebuyers to use money from the state and local government to assist with their down payment. Contacting your local HUD office is a great way to learn more about this program.
3. HUD (Housing and Urban Development) Programs
The US Department of Housing and Urban Development, also known as HUD, helps make home ownership possible for millions of Americans. The FHA loan is an example of a HUD program.
This page last updated: March 21, 2022