(ProsperNews.net) – The average American is finding the process of owning a home more complicated due to the rising cost of living. Often the biggest hurdle is making the initial down payment. However, you are in luck if you are purchasing your first house. You may qualify for down payment assistance offered by the federal government.
What Is Down Payment Assistance?
Down payment assistance helps those purchasing their first house cover their initial payment. Typically, when buying a home, you have to provide some money that equates to a percentage of the property’s final sale price. This is referred to as a down payment.
The down payment amount varies, and some mortgage programs may not require it at all. Since coming up with the amount at once can be a big hurdle, federal and private organizations have developed down payment assistance programs, loans, and grants. Such help is available and helpful to first-time homebuyers who can afford a mortgage but may not have cash at hand.
Types of Down Payment Assistance
Most down payment assistance (DPA) comes as either a loan or grant offered at the local or state level.
1. Grants
Grants are a form of down payment aid structured as a one-time cash sum. It often comes as a no-interest second loan, covering the entire or a part of the down payment or closing costs. The funds have no repayment requirement.
2. Deferred-payment Loans
These are loans that don’t have any interest. However, they have to be fully repaid once a homeowner sells their home or refinances their mortgage. Since homeowners only have to pay the amount they initially borrowed, these funds are offered as zero-interest loans.
3. Low-interest Loans
While they resemble grants, low-interest loans have a repayment requirement spanning the course of a few years. Since homeowners must repay these loans alongside their mortgages, they could have higher monthly payments.
4. Forgivable Loans
These loans resemble other aid forms, but homeowners never have to pay them off. This form of debt is forgiven after a certain period as long as one still owns the home and has not missed any of their monthly payments.
5. Individual Development Accounts (IDAs)
IDAs, or matched savings accounts, allow public or private organizations to match an account holder’s contributions. The accounts typically have income caps and employment requirements, and beneficiaries often need to undergo financial literacy training for free.
What Mortgage Types Does Down Payment Assistance Help With?
All sorts of mortgages qualify for DPA. USDA loans, VA loans, FHA loans, and other government-backed mortgages often come with built-in down payment assistance plans. For conventional mortgages, you can apply for down payment assistance.
Individual lenders may have some restrictions and requirements on accounting for and applying down payment assistance on the loans they offer. Therefore, speaking with a prospective lender about how a down payment assistance program will affect your loan is a good idea.
How To Find Down Payment Assistance Programs
While most down payment assistance programs are local, there are several that are statewide. Some of the areas to check for this aid include:
- City and county government programs. Plenty of state housing finance authorities (HFAs) educate and help homebuyers.
- State housing finance authority. Plenty of cities and counties give down payment aid to first-time homebuyers to boost homeownership. You should speak with your loan officer or check your municipality’s website for more information about local DPAs in your area.
- US Department of Housing and Urban Development (HUD). To find local home-buying programs in your state, you can browse through HUD’s website. All states also have HUD-approved counselors who can help you understand the finer details of home buying and assist you with
- Down payment resource. The down payment resource offers plenty of links for lenders, real estate agents, and homebuyers, including a tool to check for eligibility.
The Bottom Line
When it comes to owning a home for the first time, you never have to be stressed about the down payment. While the amount may seem insurmountable, plenty of down payment assistance plans can help. You should verify your eligibility and check with the local and state authorities to get started on the road to homeownership.
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