Buying a house is an expensive venture — probably the most expensive purchase you’ll ever have. Your down payment is essential to not only securing a loan but getting one with a low interest rate and manageable monthly payments.
Not everyone has the financial means to put 20 percent down — a common amount preferred by banks and one that allows you to avoid paying private mortgage insurance. But forking over 20 percent upfront is not a requirement to buy a home.
Here are some places to look for down payment assistance.
How do down payment assistance programs work?
While programs exist at the federal level and even by lender, the majority of down payment help is offered at the local level through state, county and city government programs. They can come in the form of a loan or grants.
- Grants: Housing assistance that provides a one-time grant to cover down payment needs or closing costs. The funds are essentially a gift and don’t have to be repaid.
- Low-interest loans: Loans that charge interest and must be repaid, usually over the course of a few years. These loans cover down payment and closing costs that you pay over the course of the loan rather than upfront payments.
- Deferred-payment loans: These types of loans generally don’t charge interest, but need to be repaid when a certain threshold is met. For instance, when you sell or refinance the home, you’ll need to repay the loan. Many times these are zero-interest loans, which means you’re only responsible for repaying the amount you borrowed.
- Forgivable loans: After a certain period of time has passed, your loan is forgiven, as long as the conditions are met. For instance, you still own the home and are up-to-date on payments.
Some mortgage lenders offer their own down payment assistance. For example, Chase offers up to $3,000 that can go towards closing costs and down payment needs. While this program isn’t just for first-time homebuyers, it does have other stipulations. You’ll need to get a 30-year fixed-rate home loan and you’re required to make the home your primary residence.
Down payment assistance can potentially give you money that can help you afford a down payment or it can help with closing costs. Closing costs are fees and charges that total roughly 2 percent to 5 percent of the loan principal. Even 2 percent on a $200,000 loan will equal $4,000 in closing costs.
Closing costs are an upfront payment you pay when closing on the home. If all of your money has gone to saving for a down payment, you might need help paying for closing costs.
Who is eligible for down payment assistance?
The vast majority of down payment assistance is offered to first-time homebuyers. Many cities and counties have other housing programs available, but down payment assistance is typically reserved for those who have not owned a home in the last three years.
Many programs restrict owners of rental or investment properties from participating. So you’ll need to be a first-time homebuyer and the home should be your primary residence. If you’re unsure if you qualify, contact the program before applying.
How to apply for down payment assistance
There’s no shortage of down payment assistance options, but there’s no universal application that will go to all of them. Because of this, you’ll need to apply to each one individually. Depending on the program, you may call to see if you’re eligible, complete the application online or in-person, and possibly take certain education courses.
Some programs require you to have a specific loan to qualify. For instance, you might need an FHA loan instead of a conventional loan. Aside from being a first-time homebuyer, eligibility is usually based on income. Many programs target low-to-moderate income earners. If you fall in a higher bracket, you may not qualify. You may also need to contribute a certain percentage of your own income to get assistance.
Alternative forms of down payment assistance
Not everyone qualifies for down payment assistance programs. If you’ve owned a home in the last three years, your income is too high or you’re renting or investing in a property, you may not qualify for many programs.
However, there are other housing programs you may qualify for. Visit HUD.gov, select your state and then on “learn about homeownership.” From there, you’ll learn about ways to avoid foreclosure, find home counseling services and getting money for home renovations or repairs.
Depending on where you live and your needs, you may find housing resources geared towards seniors, disaster relief and help to pay utility bills. Home assistance programs are vast and vary by needs and location. You may find that if you don’t qualify for down payment assistance, you might be eligible for assistance in other ways.