One of the most expensive things to pay for is a home since there are a lot of different fees homebuyers need to face. Typically, one of these fees is the down payment. What is a down payment? It is defined as a large amount of money that the potential homeowner pays at the start of the home-buying process.
The total purchase price includes the down payment but the down payment needs to be paid upfront. The rest of the balance becomes the mortgage payments. How much you will need to pay depends on several aspects. Fortunately, there are many down payment support options to help out with this home-buying fee!
What to Expect from Down Payment Assistance
A lot of people don’t know that there are many different kinds of options to help with down payments. Furthermore, these options can make it so much easier to buy a home!
What are the Different Types of Down Payment Support?
You can consider many down payment assistance options, which include:
- Home-buying Grants
- Mortgages that are Forgivable
- Loans that Offer Deferred Payment
- Low-Interest Loans
- Matched Savings Programs
Home-buying Grants
A grant is one of the most popular types of down payment support options because the borrower does not need to pay it off! You heard it right (or in this case read it right): homebuyers can receive grants that serve as free money. However, you should know that there are different down payment opportunities out there. Sometimes, the agency offering the grant will ask for a second lien on your home. This is why you should look through the grant terms and conditions before accepting any down payment support option.
Mortgages that are Forgivable
Loans with forgivable mortgages are a form of a second mortgage. The only condition is that these loans do not need homebuyers to pay off the loan as long as they stay in the home for a certain amount of time. Other than not requiring the homebuyer to pay off the loan, as long as they meet the terms, there is another benefit! Another benefit is that this kind of loan has no interest rates! Typically, lenders offer loan forgiveness after five years have passed. That would mean that the borrower is not required to pay off the loan. Not all lenders are the same, so there might be lenders who offer forgiveness after a longer period of time. Typically, you can cover the entire down payment with these loans.
Loans That Offer Deferred Payment
Loans that offer deferred payment are another opportunity you should think about. Since these loans involve deferred payments, borrowers do not need to pay off the second loan until one of the following things happen:
- They move or sell the property
- They manage to refinance the first mortgage
- They repay the first loan
Typically, people use the money they receive from selling the home to pay off these kinds of loans.
Low-Interest Loans
You might have the option to get a second mortgage loan from your lender, in case you reach the final stages of your first mortgage loan. You can deal with paying off your down payment from the money of the second loan. Even though you need to pay off these kinds of loans each month, you can benefit from the low-interest rate. You can even get a loan with no interest rate at all, depending on what you apply for!
Matched Savings Programs
Matched savings programs are referred to as individual development accounts. With matched savings programs, you can get down payment support. Homebuyers will be allowed to put money into an account. The money could be put in an account that belongs to a bank, government agency, or community organization. Regardless of the agency or organization that gets the money, they match the deposit amount paid by the homebuyer that can be used towards the down payment.
Other Options to Consider
The options we listed above can be great possibilities to receive down payment assistance. However, there are other kinds of support options to think about. They might not be specifically down payment assistance, but they are similar to it! Some of these options include:
Federal Housing Administration (FHA) Loans
One popular type of loan is an FHA loan since they offer low down payments that could be a minimum of 3.5% for eligible individuals. That would mean that potential home-buyers can buy a home with a lower down payment than a standard loan.
Veterans Affairs (VA) Loans
As for VA loans, they do not ask for any requirements when it comes to down payments. The loan terms differ based on the lender, but there is a chance to get a no-down-payment mortgage!
Commonly Asked Questions
It could be a bit complicated to fully understand down payments and the support options that you can find. You probably asked yourself one or more of these commonly asked questions like the ones below!
When Can You Receive Down Payment Assistance?
When you can receive down payment assistance is based on several aspects. That includes the down payment support option you choose, the type of loan, the lender, and so on. When you are looking through different kinds of assistance, make sure you look into the down payment support sources.
For instance, if you are dealing with a matched savings program with a financial institution, then you should consider the time it takes for you to save half of the amount. After that, you will need to consider the same for the bank’s half. Before you decide on this program, you should discuss with your bank the timeline for the home-buying process.
How Can I Be Eligible for Down Payment Support?
As we mentioned, the specific requirements differ based on the lender. However, some common conditions that you will probably find include the following:
- Having a qualified credit score
- Your debt-to-income ratio (DTI)
- Staying in a specific locality or area
- Going to a class on financial management
- Staying in the home you want to buy for a certain amount of time
Where to Look for Down Payment Support Options That are Available?
If you are interested in looking for down payment support, there are several places that you can start with like:
- The United States Department of Housing and Urban Development (HUD)
- Local government and state agencies
- Housing counselors that the HUD approves of
In Conclusion
When you are purchasing a home, there are many fees to go through. One popular expense that homebuyers generally face is a down payment. When you buy a home, you will need to pay a certain amount of money upfront that is part of the home’s overall purchase price. It could cost a lot, which is why a lot of people look for down payment support options, such as:
- Home-buying Grants
- Mortgages that are Forgivable
- Loans that Offer Deferred Payment
- Low-Interest Loans
- Matched Savings Programs
Other than that, people can find the following loans useful:
- FHA Loans
- VA Loans
Regardless, there are a lot of support options out there to help you with your down payment. You just need to take your time and explore your options!