Using Down Payment Assistance on Your Next Mortgage Loan

Bank calculates the home loan rate
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While the days of easy credit and 100% financing might have disappeared, at least for now, down payment assistance programs are still alive and well.

Survivors of the credit meltdown, these programs provide a valuable service for stimulating local housing markets.

From down payment assistance grants to interest-free second mortgages and other special mortgage programs, there is a growing number of options for would be home buyers.

That includes those who want to buy a home without depleting all their assets and those that do not have those assets in the first place.

Buyers can earn as much as 120 percent to 140 percent of the median area income and still qualify for some down payment assistance programs.

For instance, a buyer living in Orange County, Calif., can earn nearly $98,000 a year and qualify for a grant of up to 5 percent of the purchase price of the home, according to the requirements of one of the down payment assistance programs available in the state.

What Types of Assistance Are Available

Down payment assistance comes in many forms, but the most common sources are:

  • Community Grants
  • State Housing Agencies
  • Local Housing Agencies
  • Lender Specific Community Reinvestment Act Programs
  • Fannie Mae
  • Freddie Mac
  • Federal Housing Administration

There are more sources than listed above, but these will represent the vast majority of available programs and are a great place to start your research.

How Do You Qualify

While program guidelines vary from product to product, some of the standard guidelines are listed below. The list is not all-inclusive, and all of these restrictions will not be applicable to a single down payment assistance program in most cases.

Here are the common qualifiers:

  • Be a first-time homebuyer. Make sure and understand the definition of “first-time homebuyer” too.
  • Occupy the property as their primary residence, non-occupant co-borrowers are typically not allowed
  • Complete homebuyer education counseling and obtain a certificate of completion through an eligible homebuyer counseling organization.
  • Meet the requirement of the lender and mortgage insurer/guarantor
  • Your income must fall within the program’s income limits.
  • The home you want to purchase must fall within the program’s home price limits.
  • You must not have owned a home in the last three years.
  • You must live in the home that you purchase.

Again, all of these requirements will likely not be applicable to your preferred program. A lot of them will though so be aware and be prepared to satisfy them if needed.

Will You Have to Take a Homebuyer Education Class

Homebuyer education is critical to the success and happiness of a homeowner. It is highly advisable that all first-time home buyers get educated.

While it is not required for all down payment assistance programs, it never hurts to be prepared and is always a good idea to start your process with a homebuyer education course.

How do I take this education course?

  • ONLINE: there are a number of accredited online education choices
  • IN-PERSON: face-to-face Homebuyer Education through NeighborWorks America or any HUD-Approved Housing Counseling Agency

Where Can You Find a List of Programs

Any search for down payment assistance help should start with your state housing agency. They offer the bulk of the DPA information and programs.

Your local housing agency, county and/or city, is also a great resource. It is especially true for community grant programs which can often provide the best deal for low-to-moderate income homebuyers.

HUD also has some quality information on down payment assistance programs that work with an FHA mortgage loan.

The Nehemiah Community Foundation has compiled one of the most comprehensive Down Payment Assistance Program databases in the country to help reduce your barriers to homeownership.​

The database includes first-time homebuyer and general assistance programs.

Ultimately, however, your mortgage lender will be the final say. Not all lenders offer all programs so it is imperative you check with your loan officer first to ensure they can help you with the down payment assistance program you are hoping to pursue.