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If you are a first-time homebuyer and worried that you can’t afford a down payment on a new home, you may qualify for down payment assistance that is offered through a government agency or private organizations. There are hundreds of down payment assistance programs available across the country. Here’s a quick look at down payment assistance (DPA) and how it works.
What is Down Payment Assistance?
When you purchase a home, you will usually put money down towards the purchase price of the home. This is the down payment. Depending on the interest rate, your monthly mortgage payments will often depend on how much money you put down on the purchase of your home. The amount you will need for a down payment will vary – and some loan solutions may require no down payment at all. Nonetheless, coming up with the money for a down payment can be difficult for many families, hence the availability of down payment assistance programs.
Types of Down Payment Assistance
In many cases, the assistance you receive won’t be money you have to pay back. It just depends on the program and where you live.
Arguably the most valuable form of down payment assistance is a grant. The reason is that grants provide money that homebuyers never have to repay.
Another common form of down payment assistance is forgivable loans. Essentially, these are loans that you won’t have to pay back as long as you stay in the home for a set number of years. In addition, these loans often come with an interest rate of 0%. As with any down payment assistance, just be sure to read the fine print and ask questions.
This type of down payment assistance is essentially a second loan towards the purchase of the home. You won’t have to repay these loans until you move, sell, or refinance your mortgage. These loans are not forgiven, so you will have to repay them if you sell your home. But do know that money you get from the sale of the home can be put towards these loans.
Another form of assistance is a second mortgage that would be paid monthly along with your primary mortgage.
Who Qualifies for Down Payment Assistance Programs?
These programs are usually reserved for first-time homebuyers only. However, state and federal programs may consider you as a first-time homebuyer if you haven’t owned any home in a certain period of time (often 3 years).
How Does Down Payment Assistance Typically Work?
Down payment assistance often comes in the form of grants, loans, and other programs. And will vary depending on your state. You will first apply for the specific program. Then, your eligibility will be determined by several factors including your household income and credit history – again depending on the requirements of the actual program. You may be required to attend a home buyer education class.
How much money you are awarded will again depend on the down payment assistance program. Some programs offer a percentage based on the selling price of the home, while others set a specific amount. Regardless, this is money that may help you qualify for a mortgage. With that said, it is important to ensure that the down payment assistance you are applying for is accepted by your lender.
What Types of Loans are available with Down Payment Assistance?
Most down payment assistance programs will require that you borrow from an approved lender. Depending on the program and lender, down payment assistance mortgages often include the following loan solutions:
- Conventional loans
- FHA loans (backed by the Federal Housing Administration)
- VA loans (backed by the Department of Veterans Affairs)
- USDA loans (backed by the U.S. Department of Agriculture)
How Can I Find Down Payment Assistance Programs in My Area?
The best way to find down payment assistance programs is to talk to your Axia Loan Officer or real estate agent. They will let you know which programs are available and whether they are accepted by the lender.
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