Buying a home with a mortgage often requires you to put forward a larger sum of your own money that will contribute to the purchase of the property, and while a 20% rate is used to avoid mortgage insurance, rates can potentially vary.
However, not everyone has money just lying around, waiting to be used, and some low-income families in the US will have a hard time coughing up something like $40k for a $200k home.
Sometimes, it’s even worse than that, and families can’t even set aside a couple of grand to cover the down payment, which is where down payment assistance steps in, offering help to those in dire need of a housing arrangement.
With the help of these programs, prospective home buyers can expand their horizons and look for homes they wouldn’t be able to purchase otherwise, allowing them to build equity with ease.
What is down payment assistance?
Essentially, the assistance comes in the form of a loan/grant issued by a third-party organization or company, although some may also offer you a tax break instead.
Most of the time, these programs receive funding from the federal government, charities, or even private foundations that charitable individuals contribute to.
One such organization is the Chenoa Fund, which has made a name for itself by offering eligible FHA loan borrowers access to up to 3.5% of the home’s purchase price, with 0% interest even.
This poses as a second mortgage for the family, and it comes with a 30-year term to pay it off.
With this, the buyer doesn’t have to worry about the down payment, and can instead focus on their finances, working extra hard to get things running smoothly in order to repay this loan on time.
At times, this second mortgage can even be forgiven if the borrower managed to make 36 consecutive payments to the first mortgage they were approved for.
How to qualify?
Due to the majority of these programs being localized, the requirements for each one of them will be specific for every separate program, meaning that you’ll have to do your research before committing.
Despite this, you may find that all programs share a series of common qualifications, among which you’ll find that the program only applies to those that are first-time home buyers and those who have an income below a certain percentage of the federal poverty line.
On top of this, you can’t use the property as an investment, and if you do qualify for a down payment assistance loan, you’re required to register the property as your primary residence.
What this means is that anyone looking to buy a second house or simply flip a house for profit can’t exactly benefit from the down payment assistance program, which is more than fair considering the number of benefits they’d be receiving.
Finding down payment assistance programs
Every journey begins with the first step, and you may find that the best option out there for you may just be your current lender, who could possibly make an agreement for the second mortgage with much more favorable terms.
You can, however, examine the Local Homebuying Programs page on the US Department of Housing and Urban Development’s website, where you’ll run into all of the programs run and administered by the department.
Apart from this, you may also want to visit your FHA’s official page, where you can scour through the grants offered by the association, all of which are applicable to down payment assistance programs you may apply to.
How to get down payment assistance from commercial lenders?
You may have noticed that the majority of the organizations that offer this form of assistance are government-run, and you’re not very likely to find a program like this that’s managed by a private organization.
If this does happen, make sure you’ve properly understood just about anything you were told, as you may have missed out on some requirements that the program offers, or perhaps even not detected that what you’re being offered is a scam.
There’s a general rule of thumb that the applications to these government assistance programs are entirely free, and if anyone asks you to pay an application fee, make sure to put your phone down and not answer any calls from that number.
Sometimes, it may be for the best to hire an experienced financial counselor to help you with what you’re facing, and you may find that there’s a lot more to it than just picking the first home that pops up on the listings.
Final word
Low-income Americans are in danger, and if this economic crisis continues, there’s no telling where those who can’t afford their necessities will be.
However, we also need shelter if we’re looking to survive, and while this may sound like child’s play to someone with enough financial security to handle a down payment, not everyone can.
Setting aside thousands of dollars for a home can be difficult, and you’re not alone when you feel like you’re in drastic need of some high-quality help.