Buying a home is an important way to start building wealth for you and your family, but saving up for a down payment slows the process for many. That’s why many federal, state, and local governments, as well as private nonprofit organizations, offer down payment assistance programs.
If you’re a first time buyer—and in some cases even if you’re not—you can take advantage of these programs and buy a house sooner than you may have thought possible. It may not cover your entire down payment, but you could qualify for a few thousand or up to tens of thousands of dollars.
Types of down payment assistance
Assistance programs offer various formats, but they typically fall under one of the following four categories.
Low-interest loan
This is typically set up like a second mortgage with a very low interest rate. It allows you to pay for the down payment over time.
Deferred payment loan
This is usually zero-interest loans that you won’t have to pay back until you sell your home or refinance your mortgage.
Forgivable loan
Also typically interest-free, you won’t have to pay back this loan after a designated number of years (usually between three and five). If you sell your home sooner, however, you may be required to pay back the loan in full.
Grant
A grant is like a gift—you usually don’t have to pay it back. But most grants will require that you live in the home for at least three years—otherwise you may have to pay it back in full.
How to find out if you’re eligible
To determine whether you qualify for down payment assistance, programs will consider your income, credit history, debt-to-income ratio, the price of the home you have in mind, and occupancy (how long you intend to live there). Zillow and Down Payment Resource have questionnaires that can give you a better idea of your eligibility.
There are many state, federal, and private non-profits that offer down payment assistance programs, so if you don’t qualify for one, don’t despair. Try again with another organization.
You can also sometimes combine more than one loan. Federal Housing Administration (FHA) loans, for example, could be combined with down payment assistance.
How to get started
A good place to start is this state-by-state list at the U.S. Department of Housing and Urban Development.
Your real estate agent or a local mortgage broker can also be a great resource to help connect you with down payment assistance programs and guide you through the rest of your home-buying journey.
Once you’ve found an assistance program that’s right for you, get your documentation together and apply. As part of the application process, most programs will require you to take an online course to get you familiar with the home-buying process from beginning to end.
Once you’re accepted, you’re ready to shop for homes and make your first offer. The closing process may take a little longer than the standard 30-45 days when using down payment assistance. But it will be worth the wait to start building wealth by owning your first home.
Sources: Zillow, Forbes, SmartAsset
Comments