Owning a home has long been and still is for many people the American Dream. But for many people, the down payment is a huge obstacle in the way of home ownership. Lenders prefer buyers to have a down payment of 20% of the purchase price, but there are government programs that require a down payment of only 3% to 5%. But even with a 3% down payment, you will still have to pay almost $10,000 down for a $300,000 home. And that’s why it takes the typical home buyer seven years to save up a down payment – a long time to put off realizing the dream of home ownership. But don’t despair: you have options. Let’s take a look, then, at some down payment assistance programs for home buyers in Redlands.
How Down Payment Assistance Works
But first, let’s see how down payment assistance works for [market_cxity] home buyers.
“Down payment assistance comes in the form of grants, loans, and other programs. It’s typically reserved for first-time home buyers only. They can be run by a variety of organizations, such as your local or state housing authority, or by a nonprofit. Eligibility is determined by your household income and credit history, varying by state and program. An application is typically needed, and sometimes you’re also required to attend training or home buyer education on the mortgage process and maintaining finances.”
The amount awarded varies according to the specific program. “Some programs offer a percentage based on the home’s sale price, while others cap assistance at a certain dollar amount. When looking for programs to apply for, research their requirements, whether it’s a grant or loan and how much assistance you can receive.”
It’s a good idea to consult a local agent about specific down payment assistance programs you’re interested in. To discover more, you can contact a Redlands agent at (951) 232-9704.
Types of Down Payment Assistance
When it comes to down payment assistance, there are several different types of programs, but most (though not all) of them are aimed at first-time home buyers.
“The most valuable form of down payment assistance is the grant. That’s because grants provide money that homeowners never have to repay – it’s considered a gift. An important word of warning here is that some programs that are labeled grants by the organization doing the funding may actually create a second lien on your home.”
A forgivable loan is a second mortgage at 0% interest that you don’t have to repay as long as you stay in your home for a pre-set number of years. “These loans come with an interest rate of 0%. Participating lenders will forgive them, meaning owners won’t have to pay them back after a certain number of years. Often, lenders will forgive the loan after 5 years, but they do have the option of not forgiving these loans for a longer period, even up to 15 or 20 years. . . . This second mortgage will usually be large enough to cover your entire down payment.”
Deferred Payment Loans
“You might also qualify for a second mortgage with a deferred payment. You don’t have to repay these second loans for an amount large enough to cover your down payment, until you move, sell, refinance your first mortgage or pay down your first loan. However, these loans are never forgiven, so you’ll have to repay them if you ever leave your home.”
You may also be able to take a low-interest second mortgage loan when you finalize your first mortgage to cover the down payment. Still, you will have to make monthly payments on this loan along with your main mortgage payment.
Matched Savings Programs
“Matched savings programs, otherwise known as individual development accounts, are another way for homeowners to help pay for their down payments. In such programs, home buyers deposit money into an account with a bank, government agency, or community organization. That institution agrees to match however much the buyer’s deposit. Buyers can then use the total amount of funds to help cover their down payments.”
Specific Down Payment Assistance Programs
Now we come to some specific down payment assistance programs, primarily grants . . .
$25,000 Down Payment Toward Equity
New for 2022, this program offers “a home buyer grant for first-generation home buyers with extra grant money available to renters with socially or economically disadvantaged backgrounds. The Downpayment Toward Equity Act awards up to $25,000 so renters can buy their first home. Grant monies can be used to make a down payment, pay for closing costs, lower your mortgage rate by using discount points, and cover other expenses, too.”
National Home Buyers Fund
A non-profit public-benefit corporation, the National Home Buyers Fund “sponsors first-time and repeat home buyers with up to 5 percent of a home’s purchase price.” It can be used in conjunction with conventional, FHA, VA, or USDA loans, and the loan is forgiven five years after closing.
Local and State Government Grants
“Some state and local governments sponsor housing grants for qualified first-time buyers. Grant sizes start at $500. Monies can be applied toward closing costs, mortgage rate reduction, or a down payment.” To qualify, you’ll typically have to meet minimum credit requirements and have a household income below a certain threshold.
Homebuyer.com Forgivable Mortgage
This is a mortgage that behaves like a grant. “Approved buyers receive cash for a down payment of up to 5% of their purchase price with no interest charged and repayment required. Not everyone is eligible for the Homebuyer.com forgivable mortgage. At a minimum, recipients must have average credit ratings, qualify for an FHA loan, and agree to accept a 30-year fixed-rate mortgage. Buyers may also be required to attend a 1-hour online educational seminar.”
Assistance With Down Payment Assitance
So with these programs, there are indeed ways for you to realize the American Dream of home ownership – even if you can’t save up for a down payment. The difficulty lies in knowing which program is right for your specific circumstances. And that’s where your experienced Redlands agent can help. A good local agent can provide the valuable guidance you need both in finding the right program and finding the right home within your price range. So if you’re ready to buy a home with down payment assistance, contact us today at (951) 232-9704.