One of the biggest financial hurdles to homeownership is the down payment. Even with lower down payment options like the FHA loan, the high price of homes in many markets — the U.S. median sale price for existing homes in March was $375,700 — results in a best-case scenario of north of $13,000. That’s before taking into consideration the higher monthly payments buyers face due to recent interest rate increases and the PMI charged on financing options with less than 20 percent equity.
Down payment assistant programs are offered by a variety of organizations from government agencies to non-profits. Some are income dependent while others are location dependent.
Rewarding homebuyers with a helping hand
While potential buyers may have some savings on hand, few have a solid sense of how much money they’ll need to close on their new home. In addition to the down payment, there are closing costs and various costs associated with the contract period, not to mention repairs, improvements and purchases that may be required after closing as well as the increasingly expensive moving process itself.
One common misconception about these programs is that they are solely for low-income buyers. However, income limits are often higher than you think, and some programs are not based on income at all.
In addition, many programs are geared toward first-time homebuyers who may be struggling to qualify for a conventional mortgage. Remember, however, that in most cases, “first-time homebuyers” refers not only to those who have never owned a home but also to those who haven’t owned in the last three years. That means that these programs may be a way to help buyers who have experienced financial hardship re-enter the housing market as homeowners.
Overcoming initial qualification hurdles
Aside from income limits, buyers typically need to meet eligibility requirements around credit scores and other financial requirements. They’ll also need to complete a certification course or counseling program in many cases.
The certification course is usually a one-day program that helps to educate homebuyers about the homebuying process, the financial responsibilities of homeownership, and the terms and conditions of the particular program they’re applying for.
Other programs may involve a meeting with a financial counselor and a review of the buyer’s mortgage readiness.
Once buyers are qualified for a down payment assistance program, they may also be eligible for additional benefits, such as closing cost assistance, further easing the financial strain of purchasing a home.
Overcoming stigma and misconceptions
Buyers and their real estate agents may face misconceptions and even a negative stigma because they are working with a down payment assistance program.
In reality, advances in technology and underwriting processes have significantly improved the timeline for mortgage approval, even with down payment assistance. In some cases, the approval process may be just as quick as conventional financing.
Forgivable grants and long-term benefits
Some down payment assistance programs offer forgivable grants, meaning that the grant does not need to be repaid if the homebuyer meets certain criteria, such as living in the home for a specified period of time.
This can significantly reduce the financial burden on the homebuyer and provide them with a long-term benefit of lower upfront costs if they are able and willing to remain in the home long-term.
With the right information and guidance, down payment assistance programs can be a valuable tool in unlocking homeownership.
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