How to get down payment help on your first home
For many first-timers, the biggest obstacle to home ownership is the required down payment. That's why down payment assistance programs were created. Consider that a family trying to buy a $200,000 house (which is pretty modest in many locations) will probably need three percent to 20 percent down. That's $6,000 to $40,000 plus closing costs. If they're able to save $250 a month toward the down payment, that's 24 to 160 months, and they still have to come up with closing costs!
Fortunately, help is available. Here’s a run-down of the most popular down payment assistance programs.
Grants from State Governments
Many first-time home buyers may qualify for down payment assistance and don't even know it. Down payment assistance consists of either grants or low- to no-interest loans. For instance, Nevada's Home Is Possible program allows applicants who meet the following criteria to get grants of up to four percent of the home loan amount for down payment assistance and closing costs.
- The minimum credit score is 640 for state-government-insured loans, 660 for manufactured homes and 680 for most conventional loans.
- Qualifying income on mortgage application must be less than $95,500.
- The home price can't exceed $400,000.
- A homebuyer education course must be completed.
- Applicants must meet ordinary state-government or conventional loan underwriting requirements.
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Most states have at least one program similar to Nevada's. Home buyers can simply search online for "down payment assistance" in their state. Understand that acceptance is not automatic; applicants must meet income, credit and other standards to qualify for financing. Interested home buyers should search their state housing authority websites for more details.
Loans for Down Payments
Other programs allow eligible applicants to borrow some or all of their down payment. For example, Washington State's Home Advantage program lets home buyers borrow up to four percent of the first mortgage amount at zero percent interest. So, a purchaser buying a $200,000 property with a 96.5 percent FHA loan would get a maximum first mortgage of $193,000. Four percent of $193,000 is $7,720. That's enough to cover the 3.5 percent minimum FHA down payment and an additional $720 for closing costs. There is no repayment for 30 years, so ask a participating lender about details on this or similar programs.
Good Neighbor Next Door
This plan is offered by HUD and is available to teachers, paramedics, police and firefighters, and they don't need to be first-time buyers. They do need to occupy the property as a primary residence, however. The program allows "good neighbors" to purchase HUD Homes, which are FHA foreclosure properties owned by HUD, for half price. Yes, that's half price.
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Here's how that works. Eligible borrowers can shop for homes in the program participation area on HUD's web site and then submit their offers through licensed real estate agents. Buyers get a first mortgage plus a second mortgage for half of the home's sale price. This "silent second" requires no interest and no payments. Once the buyer has lived in the property for 36 months and delivered all annual certifications, the second mortgage is released and the homeowner can do anything he or she wants with the property. HUD Homes can be purchased with as little as just $100 down if “good neighbor" buyers choose FHA financing. Conventional (non-government) loans are potentially available with as little as three percent down. VA and USDA loans generally require no down payment.
Some programs run out of money fairly quickly and people end up on waiting lists. To be successful in the quest for this type of free money, it's best for applicants to start early, finding and applying for loans and grants. Then they can choose and buy a home - perhaps a couple years ahead of schedule.
Gina Pogol is a licensed mortgage lender with over a decade of mortgage lending experience. Her background includes public accounting, business credit consulting and public accounting. She has been certified to underwrite Fannie Mae loans and specializes in writing about business and finance issues. Gina earned her BS in Financial Management from the University of Nevada.
