How to Buy house without Down payment assistance & Grants Programs – Home ownership is a primary factor in driving the economy in the United States both locally and nationally and so the government has designed incentives to promote home ownership among first-time home buyers. This is where the down payment assistance programs come into the role.
Down payment assistance programs for first-time home buyers make the process of purchasing a home more affordable. This assistance program removes hurdles for first-time home buyers belonging to the low-income category and prevents them from using their hard-earned life savings for a big down payment. This guide will throw light on the down payment assistance program and how you can find one to finance your first home.
Highlights of this Post
What Are Down Payment Grants Assistance For First-Time Home Buyers?
Down payment assistance programs are designed to help the economy of the States to prosper. By accessing down payment grants and assistance programs renters become successful homeowners and few homeowners can also make necessary home improvements, increase their property value and boost the curb appeal of their property.
Down payment assistance programs are grants and loans or managed savings that are designed to help prospective home buyers with financial assistance so that they can contribute money towards their home purchase. Some down payment assistance grants also help with closing costs which are charges or fees paid at the time of finalizing the mortgage.
There are several types of assistance programs available nationwide. While few programs are available at the federal level some lie with individual lenders and some with state, city and county governments.
What Are The Eligibility Criteria To Qualify For Down Payment Assistance Programs?
A majority of down payment assistance grants and programs are offered to first-time home buyers. First-time home buyers are individuals who have not owned a home over the past three years.
A lot of counties and cities have decent housing programs for first-time home buyers, however down payment assistance grants and programs are reserved for individuals who can meet specific criteria. These criteria are as follows:
- Be a first-time home buyer, a veteran or a person who has not purchased a home in three years
- The home should be your primary residence
- Undergo homeownership counseling from HUD certified provider
- Fulfill the minimum residency requirement that ranges from 3 to 10 years
- Has sufficient credit and income to qualify for mortgage loans
- Belong to low or moderate-income group and have access and resources within program limitation
What Are The Different Types Of Down Payment Assistance Programs?
Following are the different types of down payment assistance programs that you can apply for:
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Grants
One of the most common types of down payment assistance programs is grants that offer one-time cash assistance in the form of no-interest loans to eligible candidates. The monetary assistance can be used towards a down payment closing costs or both.
Down payment assistance grants are available to first-time home buyers and in some cases repeat buyers as well. The grants are provided through state and local governments and banks.
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Forgivable Loans
Even though forgivable loans come into the category of loans they provide benefits of grants and are not required to be repaid. A part of these loans are forgivable. The debt is erased after a stipulated period so long as you own a home and remain up to date on your mortgage payments.
If you sell the home before that time associated with the loan terms then you have to pay back a part of the fund. State housing finance agencies provide down payment assistance to borrowers in the form of forgivable loans.
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Low-Interest Loans
No-interest loans are another type of down payment assistance program that works like a second mortgage. This is an additional lien against your property at a low rate of interest. You need to pay lower rates of interest on the second mortgage over the course of a few years. Unlike forgivable loans, you need to repay the loan along with your regular mortgage.
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Deferred Payment Loans
Down payment assistance that comes in the form of deferred payment loans does not include any interest and you only repay the amount that you have borrowed, that is the principle. They are not forgiven and have to be repaid completely at the time of selling the home or refinancing the mortgage.
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Individual Development Account
Individual Development Accounts are known as Matched savings accounts which refers to a special savings account in which the contribution of an account holder is matched by public or private money.
The program generally comes with employment requirements and income caps and candidates need to complete financial literacy training for this. Individual Development Accounts are offered at the state level or through nonprofit organizations.
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First Time Home Buyer Tax Credit
Mortgage tax credits also known as first-time tax credits enable home buyers to increase the tax benefits that come with home ownership and offset the amount of money that they owe in mortgage interest. The mortgage tax credit certificates are issued by state housing finance and constitute around 20% to 40% of the total mortgage interest.
What Are The Sources To Get Down Payment Assistance Programs?
There isn’t any comprehensive national database to find out down payment assistance programs and grants. Few programs are applied automatically for instance federal tax credit and property tax abatement to first-time home buyers.
A lot of down payment assistance programs are available at local government while some are available statewide as well. Following are other top sources that you need to check out if you’re looking for down payment assistance programs and grants.
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U.S. Department Of Housing And Urban Development HUD
The US Department of Housing and Urban Development has a list of local home-buying programs that are available in every state. You can check the HUD website or HUD-approved counselors to get Government First Time Home Buyer Programs and assistance and navigate the home-buying process. The department maintains a list of homemade assistance programs by city, county and state.
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State Housing Finance Authority
Housing finance authorities in every state provide home-buying assistance and education including a down payment assistance program to first-time home buyers.
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City And County Government
A lot of cities and counties provide down payment assistance programs and grants for first-time home buyers as a means to encourage home ownership. You can check the website of your municipality to obtain information about how to apply for a local down payment assistance program in your area.
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What Are The Different Options For No Down Payment Mortgage?
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Veterans Mortgage – VA Loans
VA loans provide low payments to veterans, active duty military members, and their spouses who have served in the U.S. military. You may be eligible for a loan through Veterans Affairs if you are a veteran or active duty military member. With these loans, there is no down payment required, the home is financed in its entirety, and the interest rate is competitive.
Eligibility Criteria
- Meet the minimum active duty service or veteran requirements
- Must be a surviving spouse of veteran or military service members
- Should be able to showcase COE (certificate of eligibility) at the time of applying for a VA mortgage.
USDA Loans
The USDA loan is a mortgage that is guaranteed by the U.S. Department of Agriculture. USDA mortgages are available for rural home purchases.
For buyers who want to buy houses in certain rural areas, the Department of Agriculture offers loans. Using this program, low- and moderate-income homebuyers can purchase homes in rural areas.
Benefits and features of USDA loans:
- The maximum price for buying a home is set.
- Improvements and repairs can be financed.
- Mortgage payments will include the PMI charge.
Eligibility Criteria
- Your home should be your primary residence
- Home should be located in an eligible rural area
- Your income should not exceed 115% of the area’s median income
- You should be a citizen of the United States, or a non citizen national of the United States or a qualified alien.
Private Mortgage Insurance
With many lenders, you can get a mortgage even with just a 20% down payment. You may be required to purchase private mortgage insurance until you meet certain criteria, such as owning at least 20% of the home.
Many people deem PMI a major mistake that they should avoid at all costs. Despite its reputability, PMI can make sense for many people. Your monthly expenses will increase because you will have to pay PMI on top of your mortgage payment. It may, however, be the best way for many people to buy a home.
The HUD sponsored the Good Neighbor Next Door Program assists teachers (pre-kindergarten through 12th grade), law enforcement officers, emergency medical technicians and firefighters to purchase homes in revitalization areas in America at a 50% discount rate.
In return candidates need to agree to live in the home as their primary residence for a minimum of three years. You can visit the HUD website to learn more details about how to apply for the program.
Buyers are required to sign a second mortgage without paying any interest or principal as long as they remain in the home. Individuals who are unable to pay for their down payment and are considering purchasing a price can go for this option.
Also read: How to buy a house in Mexico from the United States
What Are The Different Options For Low Down Payment Mortgage?
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FHA Loans
The FHA loan is similar to a USDA or VA loan. Buying a home through the Federal Housing Administration allows you to put down a significantly smaller amount than you would otherwise. Mortgages as low as 3.5% may be available to borrowers with a credit score of at least 580. Mortgages can be obtained with a 10% down payment if you have a credit score between 500 and 579.
The interest rates on these loans are generally lower than those on traditional mortgages.
Eligibility Criteria
- Pay mortgage insurance premium
- Have a debt-to-income ratio of less than 43%
- Your home should be your primary residence
- Must pay a down payment of 3.5% if you have a credit score of 580 or higher
- Must pay a down payment of 10% if you have a credit score between 500 to 579
- Should showcase proof of income and employment
HomeReady HomePossible Loan From Fannie Mae And Freddie Mac
Fannie Mae and Freddie Mac are corporations that provide conventional loans and assist low-income people to buy a house by paying as little as 3% down. However, you may be required to pay mortgage insurance if you are paying a down payment of less than 20%.
Fannie Mae HomeReady mortgages and Freddie Mac HomePossible loans are for low or moderate-income earners in America. The loan helps first-time home buyers to purchase a property by making only a 3% down payment and also obtain low mortgage insurance options. To be eligible for these mortgages you need to earn less than 80% of the area’s median income.
Freddie Mac‘s Borrow Smart Access Program is a special-purpose credit program that is targeted to assist individuals who are living in underserved communities and enable them to get an equal chance to take part in the lending and credit system in America.
The program boosts home ownership in the United States of America and offers assistance up to $3000. To be eligible for this low down payment program you need to make sure you can pay 3% down towards your new purchase home, have a credit score of 620, and at least one member of your house should be a first-time home buyer, can take free homeownership education course and your home should be your primary residence.
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Conventional Mortgage 97
Fannie Mae and Freddie Mac offer the Conventional 97 Program. A 3% initial payment can come from an angel fund, i.e. a family member or friend of the applicant who donates the money to the mortgage.
For Conventional 97 mortgages, the following are among the basic requirements:
- If the house is located in an expensive area, the loan amount cannot exceed $ 548,250 (applicable condition).
- A single-family residence is what you want to buy. You cannot purchase multiple homes at the same time.
Navy Federal Credit Union
NFCU assists first-time buyers by avoiding the need for a down payment. With no PMI and no down payment, they offer 100% financing. To qualify, you must be a member of the credit union, armed forces personnel, dependents of soldiers, and some civilians are eligible to join.
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What Are The Available Down Payment Assistance Programs For First-Time Home Buyers?
National Home Buyers Fund Inc. is a non-profit corporation that assists low-income home buyers including first-time home buyers to turn their dream of home ownership into a reality.
Eligible borrowers can receive funding up to 5% of the home mortgage so that they can use it towards the down payment and closing costs. Home buyers need to work with an approved lender to apply for down payment assistance for this program.
Individuals need to have a minimum credit score of 640 to apply and also fulfill the income criteria as required by their respective States. The minimum debt-to-income ratio should be 45% or less. The down payment assistance is used for VA, USDA and conventional loans.
First-time homebuyers can apply for Community Development Block Grants to improve the quality of their home in case they are dwelling in low-income neighborhoods.
The Community Development Block Grant is funded by the US Department Of Housing And Urban Development and provides eligible guarantees such as county and City Government. The decision to use the funding through these programs lies at the discretion of the local city or county government.
For instance, some countries use the block grant for existing first-time home buyers to buy a property while some local governments use the funds to offer affordable housing solutions in the form of 0% interest deferred payment loans
First-time home buyers who are looking for grants to cover their down payment and closing costs can apply for assistance from Bank Of America’s Community Home Ownership Commitment.
The program is available to first-time home buyers and comes with down payment assistance up to 3% of the home purchase price or $10000 whichever is lower and closing course assistance up to $7500.
You can qualify for down payment assistance through Bank of America’s Community Home Ownership Commitment by fulfilling the income criteria as required.
Individuals have to go through a home buyer education program conducted by a HUD approved counseling agency. The only drawback is that Bank of America is not so flexible when it comes to credit score and debt-to-income ratio requirements.
The CBC mortgage agency provides the Chenoa Fund which is the popular national down payment assistance program to boost affordable and sustainable homeownership across the nation.
The program enables first-time home buyers belonging to low or moderate-income categories with down payment assistance provided.
First-time buyers who have a credit score of 600 or higher can apply for the program in all states except New York. For those opting for FHA loans, they can prefer 10-year repayable loans, 30 repayable loans, and 5% down payment loans.
Conclusion
Homeownership is a dream among many Americans as per reports of the National Association of Realtors. Saving for a down payment is a serious obstacle for a lot of home buyers. If you’re struggling to pay a down payment the aforementioned programs can be of great help. Down Payment assistance programs consist of tax credits, special loans and grants to assist first-time buyers to turn their homeownership dream into reality. Down payment assistance can come in the form of tax credit, grants or loans and provide individuals with money needed for making a down payment.
In addition to down payment assistance programs, you can also learn about How to Find low-income housing with no waiting list. Read our other blogs at Get Government Grants to learn more.
Frequently asked Questions
What is a down payment on a house?
It is simply an upfront payment toward the full cost of the house that you make to the seller, although it is generally considered to be for the mortgage lender.
How do you pay the down payment for an apartment?
A typical initial share in the purchase of an apartment usually represents 3% or 20% of the value of the property, paid from the time of separation until delivery, so depending on the stage of construction it can take several months, while some can be paid over several years.
What is the FHA program for first time buyers?
In order to get a mortgage from the FHA, you need to have a credit score of at least 600 and 3.5% down payment. Moreover, FHA loans allow you to choose to have your closing costs covered by the lender up to 100%.
How Long Does It Take To Get Down Payment Assistance?
Depending on the assistance and state you choose, the eligibility and the time of payment varies from state to state. Every state is offering its own first time buyer down payment grant with different amounts and terms, also serving with different charitable and non profit organizations.