Down Payment Assistance Mortgage Loan
The perfect loan to help you build your future.
There are many state, county, and local governments offer various loan assistance, grant and bond programs for qualifying low-to-moderate income families wishing to purchase a home. Christensen Financial is here to help you navigate the down-payment-assistance financing process.
Don’t let worries of coming up with down payment dollars scare you away from buying a home. Today’s buyers have more options than ever for putting together these funds.
5 Down Payment Assistance Programs
If you aren’t sure that you can cover a down payment on your own, you may want to consider a down payment assistance loan. DPA loans are unique because, unlike other types of loans, you can use them for your down payment. DPA loans can come in three major forms: second mortgages, deferred payments and forgiveness loans.
Second Mortgage: If you take out a second mortgage, you must make your payments at the same time that you pay off your current loan. You have two mortgage payments a month instead of one, and you need to keep up with both.
The rate you can expect to pay on these loans will vary, depending on your credit score, debt, savings and other financial factors. The rates on second mortgages, though, do tend to be slightly higher than those on first mortgage loans.
Deferred-Payment Loan: With a deferred payment schedule, you can put off your payments while you pay down your primary loan. However, you must pay back your deferred loan when you sell your home, refinance, or pay off your primary mortgage.
If you are using such a loan for down payment assistance, it might come with 0% interest, making this an even more attractive option.
Forgivable Loan: Forgiveness loans expire after a certain number of years living in your home. If you stay in your home until the loan expires, you don’t need to pay back the loan. If you move, you’ll need to refinance or pay off your primary mortgage before the expiration date.
Again, if you are applying for a forgivable loan for down payment assistance, the interest rate attached to it might be 0%.
You might also qualify for a down payment assistance grant to cover the cost of your down payment. DPA grants are different from DPA loans. Whereas you must repay a loan at some point – unless it is a forgivable one – you don’t need to repay a grant.
Program requirements for DPA grants can vary by year, and most come from local governments and charities. Each of these programs will operate differently, but usually you’ll receive the money in a lump sum that you then use to pay off your down payment.
Be aware that grants might come with stipulations: If you don’t live in your home for enough years, you might have to pay some of the award money back when you sell. Make sure you understand the rules of your grant program before making a move.
Searching for down payment assistance? Then visit the online home of the U.S. Department of Housing and Urban Development. The agency, better known as HUD, offers a long list of state-run housing assistance programs. And if you’d rather talk to a HUD-approved housing counselor, you can find a list of them on the site.
These programs – and HUD counselors – can help you find loan and grant programs that can help you cover the cost of your down payment. The programs available through states will vary, with some requiring that you live in a home for a certain number of years or that you attend home buyer’s education courses. Make sure you understand the requirements, and that you’re willing to follow them, before signing up for a state-run program.
HUD also offers its Good Neighbor Next Door program. This isn’t technically a down payment assistance program. But if you qualify for Good Neighbor Next Door, you can buy a home for a deeply discounted price. And that, of course, will result in a lower down payment.
Through the Good Neighbor Next Door program, those working in public-service careers can buy a HUD-owned property at a 50% discount. HUD-owned homes are foreclosures, and already affordable without the discount. To view a list of Good Neighbor Next Door properties, visit the HUD Home Store.
You will have to meet certain requirements to participate in this program. First, you can only buy a HUD-owned home. Second, the Good Neighbor Next Door program is only open to a select few professions, including:
Teachers: You may participate in Good Neighbor Next Door as a teacher if you’re an accredited full-time instructor at a public or private school. Your school must provide direct services to students, and you must teach students in grades pre-K – 12. In addition, you must also serve students in the area in which you’re buying a home.
Law Enforcement Officers: To participate in the program as a law enforcement officer, you must have full-time law enforcement employment with a recognized state or federal governing body. You may also be a full-time Indian tribal officer in certain areas. You must have sworn to uphold state, federal, tribal and municipal laws. You must also have the power to make arrests for law violations.
Firefighter/Emergency Medical Technicians: You may take part in the program as a firefighter or emergency medical technician if you have full-time employment with a state, federal, or local government. Like teachers, you must provide emergency services to the area in which you buy the home.
In addition to profession requirements, the following also apply:
You must agree to continue working in your current profession for at least another year past closing.
You must live in the home you buy as your primary residence for at least 3 years.
You must certify that you haven’t owned a home in the last year.
Loans insured by government agencies – such as VA or FHA loans – again aren’t technically examples of down payment assistance programs. However, these government-backed loans usually allow buyers to provide lower down payments. That can be a help to first-time buyers worried about coming up with thousands of dollars at closing.
Government-backed loans are insured by the federal government, which makes them less risky for lenders. This allows the lender to give mortgages to people with lower credit scores and less money for a down payment.
There are a few different types of government-backed loans. Each loan type has its own criteria you and your home must meet to qualify.
FHA Loans: FHA loans have insurance from the Federal Housing Administration. With an FHA loan, you can buy a home with as little as 3.5% down if your credit score is 580 or higher. If you can bring at least 10% down to your closing, you may be able to buy a home with a credit score as low as 500. However, the minimum score to obtain an FHA loan at Quicken Loans is 580.
USDA Loans: USDA loans are loans for people who want to buy a home in a rural or suburban area. Your home must be in a zone the USDA deems “adequately rural” to qualify. You also cannot earn more than 115% of your county’s median income, and your property must not be a working farm. With a USDA loan, you can buy a home with no down payment.
VA Loans: VA loans are home loans for current members of the Armed Forces, veterans, and certain spouses of deceased service members. You must meet service requirements before you can get a VA loan. Like a USDA loan, a VA loan allows you to buy a home with no money down.