Down payment assistance for first-time homebuyers helps you cover the upfront expenses of buying a house, such as the down payment or closing costs. There are a few different types available online, and some of them don’t require repayment.
According to the National Association of REALTORS®, one of the biggest hurdles for first-time buyers is saving up for the down payment. Here’s what you need to know about first-time homebuyer down payment assistance programs and how to qualify.
What is first-time homebuyer down payment assistance?
First-time homebuyer down payment assistance programs help cover a portion of the down payment or closing costs. Some of these programs are structured as a second loan, while others are grants that don’t need to be repaid. Overall, down payment assistance is a type of first-time homebuyer incentive, similar to a homebuying tax credit.
Note:
Some down payment assistance programs are designed to expand homeownership in certain areas. Local organizations might offer assistance in the form of grants or forgivable loans to draw buyers to the region, and buyers benefit from the extra funds.
Tai Christensen, president of Arrive Home, says, “Down payment assistance programs are designed to help consumers, who are often buying their first home, by providing them with financial resources that they can use toward the down payment on their property. Since saving for a down payment can be extremely challenging for most buyers, these programs can help bridge the gap and help consumers get their foot on the property ladder.”
To receive down payment assistance, find a program in your desired location and check its requirements. Most programs have criteria that have to be met in order for you to qualify for down payment assistance, such as being a first-time homebuyer or having an income at or below a certain threshold.
How does down payment assistance work?
Typically, homebuyers must apply for down payment assistance. The requirements for programs vary, but typically include:
- Homeownership: You must be a first-time buyer. Some programs allow you to qualify if you haven’t owned a home in the past three years.
- Eligible income: You must meet income requirements that can vary by program and location (some commonly require you to be at or below 80% of the median income for the county where you’re buying).
- Credit score: Programs often require a score of 640 or better.
- Purchase price: The sale price of the property might have to be under a certain amount based on the area.
If you qualify, the funds are paid to the seller, lender, or other party on your behalf at closing.
What types of down payment assistance are available?
The three most common types of first-time home buyer programs are:
- Grants
- Second mortgages
- Forgivable loans
Down payment assistance grants don’t have to be repaid. However, assistance received as a second mortgage will. Depending on the program, this type of assistance may come with interest, but the interest rate is usually lower than other loan products.
A forgivable loan, on the other hand, doesn’t require repayment if all of the terms and conditions are met, such as living in the property for a certain number of years before you sell.
Who qualifies for first-time homebuyer assistance?
These types of programs are meant for first-time homebuyers or homeowners who haven’t owned a home in the past three years. Programs may have other criteria, such as meeting a certain income level or living in a specific location.
However, while many programs share similarities with one another, there isn’t a uniform standard for all down payment assistance programs. The best way to find out if you qualify is to start looking for programs offered by either your state or county.
Note:
Nationwide down payment assistance programs exist as well, but these are typically second mortgages.
How to find and apply for down payment assistance programs
The U.S. Department of Housing and Urban Development (HUD) lists state homebuyer assistance programs on its website, which you can use as a starting point. Since not every down payment assistance program will be listed there, you should also check your local government’s website.
Tip:
If you’re flexible about your purchase area, you may also want to consider looking at programs in nearby counties, especially if it won’t greatly impact your office commute or the school district is comparable.
You can also ask your lender or mortgage broker if there are programs you may qualify for. “To ensure you find the right program, it’s best to work with a mortgage broker who has access to many down payment assistance programs,” says Reed Letson, of Elevation Mortgage. “Start searching for a local mortgage broker in your area and talk to them about your scenario. From here, they will be able to determine which program would work best for you.”
First-time homebuyer down payment assistance FAQ
Are down payment assistance programs only for low-income buyers?
Open
Can down payment assistance be used with FHA loans?
Open
Do I have to repay down payment assistance grants?
Open
Are there specific state or local programs available?
Open
How does down payment assistance affect my mortgage?
Open
