Down Payment Assistance Programs: How to Find Help to Buy a Home

A variety of down payment assistance and homeownership programs are out there to help first-time homebuyers.

While there’s no question that one of the biggest challenges first-time homebuyers face is to accumulate the funds for a down payment, the reality is that would-be buyers often overestimate the amount of money they’ll need and underestimate their ability to qualify for down payment assistance programs.

While plenty of potential buyers believe that you need at least 20 percent down to qualify for home financing, this isn’t always true. On average, new home buyers put down about 7 percent. Federal Housing Administration (FHA) loans require a down payment of just 3.5 percent, and Freddie Mac loans have options for buyers to put down as little as 3 percent.

Even with a lower down payment, you’ll need some cash to buy a home regardless of whether you’re opting for a newly built or used home. The median sales price for a newly built home sits around $439,500. This means you’ll need a down payment of $15,383 for a 3.5 percent down payment; $21,975 for a 5 percent down payment; or $43,950 for a 10 percent down payment.

The good news: There are more than 2,000 down payment assistance programs available across the country. With 75% of these pertaining to down payment and closing cost assistance to new homebuyers. Nearly 40% of these programs are for repeat homebuyers who have owned a home in the last 3 years.

Homeownership Programs

Prospective buyers often focus on the need for down payment funds, but homeownership programs offer a variety of assistance to buyers including:

• Down payment and closing cost assistance that must be repaid if you sell before a certain time, such as 5 or 10 years or when you sell the home;
• Down payment grants that do not have to be repaid;
• Low-interest home loans; or
• Mortgage Credit Certificates (MCCs), which are federal income tax credits for the life of the loan to help low-to-moderate income borrowers afford their housing payments.

There are plenty of home ownership programs, and it can be difficult to find all the information. Most of these programs are city or neighborhood based, but there are also state programs available to encourage home ownership.

DownPaymentResource.com serves as a single database to access information about home ownership programs and their eligibility requirements. More than 2,500 programs from state agencies, local government, and nonprofit organizations are currently listed.

Carrie Powers, a mortgage loan officer with Silverton Mortgage in Marietta, Georgia, suggests getting creative with your problem solving. “If you want to make a 20 percent down payment on a conventional loan, you can use 10 percent of your own money and 10 percent from a down payment assistance program,” says Powers. “Sometimes extra assistance is available to buyers in new-home communities directly from the builder for closing costs as an incentive to buy.”

Government Assistance Loans

There are a number of government assistance programs and grants that offer financial aid to first-time homebuyers. Most commonly known is the basic Federal Housing Administration, or FHA loan, which can help first-time buyers purchase a single family home.

An FHA loan has some perks including lower down payments and more lenient credit requirements. Minimum credit scores of 580 help more people qualify often with a higher down payment.

The U.S. Department of Agriculture, or USDA, has a homebuyer assistance program that focuses on homes in rural areas. The U.S. Department of Veterans Affairs (VA) offers a VA loan that helps active-duty military members, veterans, and surviving spouses buy new homes.

The U.S Housing and Urban Development, or HUD, offers a number of mortgage programs for families, including adjustable rate mortgages, basic home mortgage loans, and home equity conversion mortgages for seniors.

Eligibility for Aid

While some of these programs are limited to first-time buyers, the official definition of a first-time buyer is looser than you might expect. According to the U.S. Department of Housing and Urban Development (HUD), a first-time buyer is someone who has not owned a primary residence in the previous three years.

Typically, eligibility is also determined based on household income and the price of the home. Both of these factors are determined by an area’s median income and home sales price, so they vary widely across the country. Additionally, buyers must be able to meet the minimum contribution required by the program or loan; this can be as low as $500, and is a sign of good faith that a buyer will uphold their end of the deal.

Some programs have been created to help people in specific careers, such as teachers, policeman, firefighters and health care professionals, become homeowners. There can also be additional requirements, such as credit guidelines and completion of homeownership education courses. Some new home builders also provide incentives to first responders, police officers, military, fire fighters, and educators.

Homeownership programs exist to give flexibility to potential new buyers, making the milestone of owning a home more achievable. For more resources on the homebuying process, visit the NewHomeSource Learn Center.