Buying a house can cost a fortune. This process involves a lot of costs that you need to deal with. One of these expenses is a down payment. In other words, it is a portion of the house’s total price that you have to pay upfront. Another housing expense is the mortgage, which covers the remaining balance of the house’s price after paying the down payment. In general, there are several factors that affect how much money you’ll need to provide. However, people who have to deal with these costs are lucky to have many assistance options available. These options can save you money and mental energy.
What Type of Assistance Can You Get for a Down Payment?
Before you start your hunt for a new house, you will need to consider your options for assistance. You might be surprised by how many support opportunities you have. Some of the most useful options are:
- Matched Savings Programs
- Grants
- Deferred-Payment Loans
- Forgivable Mortgage Loans
- Low-Interest Loans
Matched Savings Programs
“Individual development accounts” is another name for these types of programs. Homebuyers can receive assistance with their down payments through these programs. As a homebuyer, you can create an account with a bank, government agency, or community organization. This institution will credit the exact same amount of money you deposit into that account. Lastly, the down payment will be covered by the total amount, which is made up of the buyer’s deposit and the institution’s deposit.
Grants
When it comes to assistance options, grants usually steal the show. This is because grant money is essentially gifted and does not need to be paid back. Yes, there is such a thing as “free money” in the form of grants available to homebuyers. However, sometimes the grantmaker may place a second lien on your property as a condition of the grant. For this reason, it is critical to carefully read the fine print before accepting any type of down payment assistance. By doing this, you can be sure that you understand what you are dealing with and the kind of help you are getting.
Deferred-Payment Loans
A deferred-payment loan is another option for getting assistance with a down payment. This is exactly what you need if you want to postpone payments. That means the repayment of the second loan is deferred until the borrower either:
- Moves
- Sells the house
- Refinances the initial mortgage
- Gets the initial debt paid off
It is common practice for borrowers to use the proceeds from a property sale to pay back such loans.
Forgivable Mortgage Loans
These loans fall under the category of second mortgages. Still, the buyer does not have to pay back the loan as long as they live in the house for a certain amount of time. This is not the only advantage of this option: it also comes with no interest. Most lenders cancel this loan after five years, so the borrower won’t have to pay anything back. However, this time period might be longer depending on the lender. The benefit to these loans is that the funds that come from them can be used towards covering the down payment!
Low-Interest Loans
When you close on your first mortgage, your lender, organization, etc. may offer you the option of taking out a second mortgage loan. This second loan might help with the down payment. Even though this type of loan has to be paid back every month, the interest rate is usually low or even 0% in some cases.
Alternatives Assistance Options
If you do not think any of the assistance options we discussed are appropriate for your situation, there are some alternatives that you might be interested in. Basically, these alternatives are not intended to help with down payments specifically, but they can make a great difference.
FHA (Federal Housing Administration) Loans
With an FHA loan, the minimum required down payment is only 3.5%, making it a very attractive option for many borrowers. This makes it possible for homebuyers to put down less money than they would for a standard loan.
VA (Veterans Affairs) Loans
It is not necessary to make a down payment to qualify for a VA loan. Loan conditions may change from one lender to another. In any case, you may receive a mortgage loan without putting anything down.
Frequently Asked Questions
It might be difficult to understand down payments and down payment assistance options. There may be some questions you end up asking. We have some answers for you!
Where Can I Find Opportunities for Down Payment Assistance?
There are multiple sources for down payment assistance to check out. Some popular places to start with are:
- The United States Department of Housing and Urban Development (HUD)
- Housing counselors that are HUD-approved
- State government agencies
- Local government agencies
When Can You Anticipate a Down Payment Assistance Check?
Several variables will affect the precise waiting period that you might anticipate. You should consider factors such as the type of down payment support you are receiving, the loan you’re taking out, the lending institution, etc. Take the matched savings program you are doing with a bank as an example. Consider how long it will take you to save up the first 50% of the whole amount. The time it takes the bank to deposit its portion also has to be factored in. Talk to the bank to find out what kind of delays, if any, you could face with this program before committing to it.
What are the Requirements to Get Help with a Down Payment?
We know we keep repeating ourselves, but each lender has different qualification standards. Here are a few examples of more typical requirements you could encounter:
- Have a credit score that qualifies you
- Your debt-to-income ratio (DTI)
- Live in a particular place
- Take a course on budgeting and home buying
- Live in the property for a certain amount of time
Bottom Line
When it comes to purchasing a home, there are many different costs that need to be taken into consideration. A down payment is a typical expense that homebuyers generally need to take care of. When speaking about the process of purchasing a home, the word “down payment” refers to an amount of money that represents a certain part of the total cost of the property. Because this may be a significant amount of money, many people look for options to receive assistance with the down payment. The following are some solutions to take into consideration:
- Matched Savings Programs
- Grants
- Deferred-Payment Loans
- Forgivable Mortgage Loans
- Low-Interest Loans
In addition to these options, people may also be able to benefit from the following alternatives:
- FHA (Federal Housing Administration) Loans
- VA (Veterans Affairs) Loans
When trying to find the assistance you are looking for, you can check out these sources:
- The United States Department of Housing and Urban Development (HUD)
- Housing counselors that are HUD-approved
- State government agencies
- Local government agencies
In any case, you could be surprised by the number of opportunities that are available to help you with your down payment. You just need to review your options thoroughly.
