Trying to save money for a down payment can be a major obstacle to home ownership for many consumers. Nearly 60% of Millennials say that coming up with a down payment is one of the biggest obstacles standing in the way of homeownership according to a recent survey by Apartment List.
Yet if you’re worried about not being able to come up with the money you need to afford a down payment on a home, there’s good news. Thanks to mortgage down payment assistance programs, you might not have to rely on your savings alone to accomplish your goal of becoming a homeowner.
The guide below will help you understand what mortgage down payment assistance is, how these types of programs work, and where to look for this type of financial assistance. Here’s what you need to know if you’re interested in using mortgage down payment assistance when you purchase a home, from myFICO.
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What Is Mortgage Down Payment Assistance?
Down payment assistance (DPA) programs are grants, low-interest loans, forgivable loans, and deferred payment loans that can help you pay for the cost of a down payment. In some cases, DPA programs may help with closing costs too. These types of programs can help reduce the financial burden borrowers face when trying to save up large amounts of cash to buy a home.
The funds for down payment assistance programs often come from government agencies. However, there are private lenders and other organizations that issue DPA funds to borrowers as well.
How Mortgage Down Payment Assistance Works
Each down payment assistance program is different. So, if you’re interested in finding financial help during the home-buying process, it’s wise to research the details of each program including how much assistance they offer, whether the funds are forgivable grants or loans, and if you’re able to qualify.
For some DPA programs, you may need to fill out a mortgage application and go through your lender. Yet with others, you may be able to apply for financial assistance separately as long as your lender will accept the DPA funds should you qualify.
Eligibility Requirements
In many cases, down payment assistance programs are restricted to first-time home buyers. As long as you haven’t owned a home in the last three years, you may qualify for certain programs. Other DPA program eligibility requirements may include the following:
- Minimum FICO® Score: You may need to have at least a minimum FICO Score or higher to participate in some DPA programs.
- Low-Income Borrowers: If you earn more than a certain amount per year, you may not be eligible for certain DPA programs.
- Primary Residence: Down payment assistance programs are typically only available to help buyers of primary residences, not investment or rental properties.
- Purchase Price Limitations: Some DPA programs may place restrictions on the maximum purchase price of the home you wish to purchase.
- Homebuyer Education: You may need to complete a homebuyer education course prior to closing.
Types of Mortgage Down Payment Assistance Programs
There are two primary types of down payment assistance programs available to help potential home buyers.
1. Grants: Grants are DPA funds you don’t have to repay. You may be able to use grants to cover your down payment and sometimes closing costs as well.
2. Loans: A down payment assistance loan could be another way to find help coming up with fund for your down payment and possibly closing costs on a mortgage as well. These types of loans typically function as a second mortgage. But depending on the DPA program, they may come in several different varieties.
- Forgivable Loans: These types of loans act like grants you don’t have to repay. But you’ll generally need to remain in the home for a certain number of years after the purchase before the lender forgives the debt.
- Deferred-Payment Loans: In general, borrowers can put off making payments on these types of loans until they move, refinance the first mortgage, or until the end of the loan’s term.
- Low-Interest Loans: With a low-interest loan, you’ll owe a second payment alongside your first mortgage each month for your down payment assistance. Yet since the loan features a low interest rate (and in some cases no interest), the goal is for the payment to be more affordable.
Where to Find Down Payment Assistance Grants and Loans
If you’re interested in using a grant or DPA, here are some resources to consider.
- Freddie Mac Down Payment Assistance Database
- Your State Housing Finance Agency
- National Home Buyers Fund
- Bank of America Grants
- PNC Closing Cost Assistance Grant
- Wells Fargo Grants
You can also consider Search the U.S. Department of Housing and Urban Development (HUD) website for homebuying programs in your state. Furthermore, your mortgage lender may have additional programs and resources to recommend.
Bottom Line
Trying to save up money for a down payment and closing costs can feel overwhelming—especially if you’re trying to buy a home for the first time. Yet there are resources available that can make the path to homeownership easier to navigate.
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