The American dream of homeownership increasingly seems out of reach for many first-time buyers, especially those carrying student loan debt, but down payment assistance programs can help. To purchase a home, a 10%–20% down payment is required, so young homebuyers often feel defeated before they even begin. These programs seek to alleviate the problem.
Who is eligible for down payment assistance?
There are thousands of down payment assistance programs available, most offered by state and local governments, nonprofit organizations, and lenders. Many are geared toward first-time homeowners, although not all.
Most programs require buyers to meet specific criteria:
- The home must be a primary residence, not an investment property.
- It must be a single-family home. Multifamily dwellings may be allowed in some circumstances.
- Buyers must have an income below the Area Median Income (AMI).
- Buyers must work in public service or purchase a home in a specific geographic area.
- Buyers must meet the lending requirements for a 30-year fixed-rate mortgage.
Additionally, many down payment assistance programs require recipients to complete a homebuyer education course.
Types of assistance programs
There are several different types of programs nationwide:
- Gifts and grants are monies given to qualified buyers that do not require repayment. There are tax implications associated with receiving this money, so it is recommended that you consult a tax advisor.
- A forgivable loan is issued as a mortgage, but if the buyer meets specific criteria during repayment, it need not be repaid; in essence, it acts like a grant.
- A low-interest loan for the down payment is a second mortgage. The primary loan on the remaining balance is usually at a higher interest rate.
- Deferred payment loans are repaid toward the end of the primary loan payment schedule or upon refinancing.
- Individual Development Accounts are matching programs in which the IDA matches the qualified buyer’s down payment.
- Lender programs by banks such as Chase, Wells Fargo, and others offer special down payment assistance to qualified buyers.
- Homebuyers should begin their search for down payment assistance by exploring their state’s housing assistance programs. Information websites exist in most states.
Related – How to Purchase a Home With No Down Payment
