What Is Down Payment Assistance

Homeownership is traditionally considered a picture of the American dream. And two of the big price tags involved in the transition from dreamer to homeowner are the down payment and closing costs associated with a mortgage loan.

Thankfully, down payment assistance can help make your home buying wishes a reality much faster and much more easily. Let’s delve into what down payment assistance for a house is, how it works and whether it’s right for you.

What Is A Down Payment Assistance Program?

Down payment assistance programs provide funding support for the down payment and/or closing costs when buying a house.

Many home buyers, particularly first-time home buyers, need financial assistance to achieve their homeownership goals. The purpose of these programs is to remove a potential obstacle to owning property.

Down payment assistance could prevent you from having to dip too deeply into your savings, allowing you to have more money available for closing costs and other expenses like home improvements and home maintenance.

How Down Payment Assistance Works

While many down payment assistance programs are targeted at first-time home buyers, some are aimed at people who make under a certain income or groups that share a religion or disability. These programs can come in the form of grants, but assistance can also take the form of a deferred payment, forgivable or low-interest loan.

Every program is different, so you won’t be guaranteed a certain amount in down payment assistance. It’s also important to note that the way the funding is structured may differ from one program to the next. Some programs are designed to give flat amounts of money, while others give a percentage of the loan amount up to a maximum number of dollars.

It’s also essential to understand that some down payment assistance only applies to certain types of home loans. The mortgage loans that commonly allow all types of assistance are:

• Federal Housing Administration (FHA) loans
• Department of Veterans Affairs (VA) loans
• United States Department of Agriculture (USDA) loans
• Conventional loans

Qualifying For Down Payment Assistance

Every down payment assistance program has particular eligibility requirements, so it’s important to review each application carefully so you don’t lose more money in the long run.

Here are a few of the most commonly considered factors:

• First-time home buyer status: A first-time home buyer is typically, by definition, anyone who hasn’t owned any type of residential property alone or jointly in the last 3 years.
• The location of the home: If you’re working with a local or state housing authority, the home must be in a specific county or ZIP code.
• Homeownership education: Some programs may require attending a first-time home buyer class or counseling course on financing.
• Income: Some assistance programs require that you be at or below a certain income level.
• Occupancy period: Occupying the property as a primary residence for a specified period of time is a common requirement.

Types Of Down Payment Assistance Programs And Loans

No two home buyers or financial goals are alike, so let’s take a closer look at the different types of down payment assistance programs and loans available.

Grants

Housing grants are likely the most sought-after form of down payment assistance. That’s because these cash grants don’t come with a requirement of repayment. These are often funded by federal, state and local governments or nonprofits.

Typically, grants are available for first-time home buyers and low-income families. Since they technically appear as free money, specific income requirements are typically part of the arrangement. But housing grants may be available for various demographic groups and/or social or professional affiliations.

Forgivable Loans

Forgivable loans are loans you don’t have to pay back if you meet certain requirements and loan terms. For example, terms may include living in the home as your primary residence for a clearly defined amount of time. So, if you move before this time period begins, you’ll have to pay back the loan.

Before you close on the loan, be sure you can meet all the requirements so you don’t have to worry about paying it back at all.

Deferred-Payment Loans

Deferred-payment loans have repayment terms that don’t start immediately. Instead, you might not have to make payments for the first several years you’re in your home.

In some cases, the payment on your loan may not be due until you move out or refinance.

Low-Interest Loans

A low-interest-rate loan includes fixed payment amounts each month, along with a defined payoff timeline. These loans usually carry a fixed interest rate as well.

Low-interest-rate loans are among the most competitive to qualify for because you’ll pay less over the life of the loan. However, it may be a bit harder to get approved than it is for some other types of home loans.

Pros And Cons Of Down Payment Assistance

Each down payment assistance program has plenty of advantages and disadvantages, so it may not be the best option for every home buyer.

Consider the pros and cons listed in the table below as you prepare for your home buying journey.

How To Find Down Payment Assistance For A House

To find down payment assistance programs or grants, start by researching at the city, county, state or national level. The Department of Housing and Urban Development keeps a local home buying assistance directory that may include local housing authorities, housing nonprofits and other special-interest groups. You can contact your local city or county office for more information.

Most importantly, your real estate agent (who might also be a REALTOR^®) is another great contact who can help provide information on the programs available in your area.

Down Payment Assistance FAQs

Home buyers have a lot of resources available to them. Up next are some of the frequently asked questions about down payment assistance programs and how they work.

What is the income limit for down payment assistance?

Most states have income limits that are adjusted toward low- or moderate-income home buyers. Income limits can vary from state to state, by county and even by loan type. You’ll want to check with your local or state government for its down payment assistance program’s specific requirements.

What credit score is needed for down payment assistance?

The minimum credit score most commonly needed for down payment assistance is 620.

How long does it take to get down payment assistance?

How long it takes to get down payment assistance depends on the type of program and assistance, whether it’s a state, local or nonprofit program, and the overall demand for down payment assistance.

What if I don’t qualify for any down payment assistance?

The good news is that several types of housing assistance are available if you don’t qualify for down payment assistance. A good starting point is to visit the HUD website where you can review your state’s specific programs on homeownership. HUD offers a variety of resources on how to buy, maintain and keep your home.

The Bottom Line

Down payment assistance programs help offset the upfront costs associated with buying a home. These costs include the down payment and/or closing costs. Down payment assistance programs can be used across many loans, and they come in a flat amount or a percentage of the loan amount.

Ready to buy your dream home? Get started on the application process today and see what you may qualify for.