Down payment assistance may be a viable option to help you purchase your home. These programs can provide you with funds in the form of a grant or gift in order to fulfill a down payment on a home — bringing you one step closer to homeownership.
Why is down payment assistance important?
No matter who you get down payment assistance through, the end result is the same: you’re receiving free money in order to purchase a home. According to the Urban Institutes 2018 study, Barriers to Accessing Homeownership, a whopping 68% of renters polled stated that saving for a down payment was a major obstacle in obtaining a mortgage. In addition to that, 93% of those polled admitted they believed that you have to have 20% or more for a down payment in order to even qualify for a mortgage.
The chief benefit of a down payment assistance program is it helps those renters fulfill their homeownership dreams. If a down payment is one of the only elements preventing them from being able to afford a home, these grants and gifts provided through the programs can cover the funds they are missing. In fact, having down payment assistance and taking less out for your mortgage can save you thousands of dollars over the life of your loan.
Types of down payment assistance programs
When it comes to down payment assistance (DPA), there are two main types of funding measures that borrowers can choose from. The options are a grant or a second mortgage loan, which are both provided through local housing associations, nonprofits, employers or city or county administrators.
Grant. A grant is an extremely common type of down payment assistance. Oftentimes, you can obtain a grant directly through a third party via your lender if they have a down payment assistance program. These funds don’t have to be repaid; they are essentially free money given to you. Grants also do not place a lien on the home for the amount provided. Many grants are offered through state housing authorities, and the amounts and qualifications vary from state to state.
Second mortgage loan. This type of down payment assistance must be paid back. Typically these loans are offered for a specific term at either 0% interest or a low-interest rate. A lien will be placed on the home for the amount taken out for the second mortgage, but the funds can help cover the down payment.
It is important to point out that each state has varying down payment assistance programs and eligibility requirements. For example, in Virginia first-time homebuyers can receive down payment assistance in the form of a grant, for up to 2.5% of the home value, and put as little as 1% down on the home through the Virginia Housing Development Authority.
In Florida, first-time home buyers can receive up to 3% of the home value in the form of a grant via HFA Preferred Grant, which are non-repayable funds. You can check out a list of your state’s down payment assistance programs through the U.S. Department of Housing and Urban Development. Plus, an OVM loan officer can help walk you through the steps if you’d like.
How do I qualify for down payment assistance?
Eligibility requirements vary by state and even county in some cases. Standard eligibility requirements usually consist of a minimum credit score, and they may state that the home value cannot exceed a certain amount; moreover, they often have a household income maximum. Again, you can search eligibility requirements by state and county via the U.S. Department of Housing and Urban Development to determine which programs you may qualify for.
The bottom line
If you don’t have immediate funds for a down payment, you’re not alone and you’re also not out of luck. Down payment assistance programs are helping those dreaming of homeownership achieve their goals. Start by researching the programs available in your area so you have knowledge of your options and then speak with a professional.
As always, we’re here to answer any questions you have and help guide you through the process. Give us a call or start your application today