Buying a new home is a dream come true for many people. For others, it is only a dream because they do not have the money needed to cover the downpayment and closing costs. This is where down payment assistance programs come into play.

Local government municipalities focused on affordable home buying opportunities typically have some form of first-time homebuyer programs. These are programs designed to teach potential buyers the process of buying a home, budgeting, and more. The programs are free and take place over the course of several months.

At the completion of the program, some participants can qualify for financial assistance. Homebuyers also benefit from mortgages that are backed by the Federal Housing Administration. Because the loans are secured by the government, traditional lenders are willing to work with individuals with limited or blemished credit histories.

Are you thinking about buying a home in the near future? Keep reading for more information on downpayment assistance programs and whether it is a good idea or not.

What is a Down Payment Assistance Program?

Downpayment assistance programs are an extension of first-time homebuyer programs. People use the terms interchangeably but they are two different programs. A person can receive downpayment assistance from several sources, including banks.

When it comes to down payment assistance grants, the money is funded through the Housing and Urban Development (HUD). Non-profits are selected to administer the program and oversight comes from the housing departments within the county or city.

These entities set the rules which include where a homebuyer can purchase a home using grant money. In many instances, HUD provides funding to areas with active Community Redevelopment Areas (CRA).

Finding a Program in Your Area

There are a couple of ways to find a homebuyer’s program in your area. You can start by doing a local Google search. Or, contact the housing department at the city or county offices. Community-based outreach organizations will also have information.

After locating programs, contact them to see what the requirements are and how to qualify. Ensure the program offers a day and time you’re available to attend. Missing classes can leave a negative mark and disqualify you from receiving the downpayment assistance.

Also, ask if the downpayment assistance grants are suited for your particular situation.

Getting a Home Loan

After successfully completing the first-time homebuyer program and qualifying for a downpayment assistance grant, you’ll receive a certificate. With the certificate in hand, you can start shopping for your new home.

Pay close attention to the conditions of actually receiving the money towards your home purchase.

• You’ll need a realtor with experience working with homebuyer downpayment assistance programs. They will be able to help navigate through the program and some have great advice for homebuyers.
• Make sure you find a home within the designated boundaries set forth by the program. This information will be included during the course and in the paperwork provided.
• There may also be restrictions on the type of home that can be purchase. Some programs may exclude new construction homes or homes in a gated community.
• Follow the maximum home purchase price.

Once you’ve found the perfect home, it’s time to secure a loan with a lender approved to receive funds from the program and by the FHA.

How Much Assistance is Available?

When the decision is made to buy a home, start exploring down payment assistance programs, it is important to understand how much money is available. The down payment on a home can range from three to 20 percent. Most programs will have a cap on the amount of assistance each participant can receive.

This will directly impact how much you can pay for a house. It doesn’t mean you can’t get the house of your choosing. There is always the option of using your own money or negotiating with the seller to lower the price and/or pay the closing costs.

Selling Your Home

First-time homebuyer programs are designed to help people buy their first home but the down payment assistance portion can also be used by prior homeowners. You simply can’t have owned a home in the past three years.

There is no rule stating that a person has to stay in the home forever. People relocate, some fall on financial hardships, or their circumstances change and they want something bigger and better.

When considering accepting down payment assistance there will be terms in the contract regarding the sale of the home. Here we look at the three options that participants may face.

Loan Repayment

Some assistance programs require the homebuyer to repay down payment assistance. This is rare when it comes to programs backed by HUD. Make sure the program is federally funded. Otherwise, a second mortgage could be placed on the home until the money is repaid.

Loan Proration

Loan proration is very common. For every year the mortgage is paid on the home a portion of the down payment assistance is forgiven. With some programs, the amount is spread over a few years while other programs are over longer periods.

If the home is sold before reaching the threshold, you will either have to repay the full amount of the down payment grant or the amount remaining.

Loan Forgiveness

Loan forgiveness is similar to loan proration. In this scenario, the full amount of the down payment assistance grant is forgiven completely once certain requirements are met.

The requirements could be a certain milestone such as five or 10 years in the home. Or there can be other specifications like paying your mortgage on-time or participating in homeownership classes.

Are You Ready to Buy a House?

Down payment assistance is free money to those willing to sacrifice a few hours to learn the home buying process. Purchasing a home is the biggest financial investment most people will ever make. Don’t leave that free money on the table.

Did you enjoy this article? Keep coming back for more informative information on the home buying process.