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Down payment grants are designed to help eligible buyers bridge the gap between their savings and the required down payment for a mortgage. This money doesn’t usually have to be repaid.
- Down payment assistance money is allocated to states through the Department of Housing and Urban Development (HUD). HUD’s website lists the programs offered by the state
- While every program varies, common eligibility requirements include income, home sales price, credit score, and geographic areas. You must also be a first-time buyer purchasing a primary residence
- Make sure you understand the fine print of the grant, especially any actions that could result in you needing to pay it back
Much down payment grant money goes unclaimed. If you qualify, it’s worth it to jump through the necessary hoops to claim this free money.
Down payment: Biggest obstacle for first-time buyers
A survey by Trulia concluded that the top challenge for would-be homebuyers is the down payment requirement.
Over half of potential buyers claimed saving a down payment was a bigger issue than credit scores, the income needed or housing prices.
Down payment grants can help you meet this challenge.
Down payment assistance (DPA) programs can help
Down payment grants are designed to help eligible buyers bridge the gap between their savings and the required down payment for a mortgage.
This money doesn’t usually have to be repaid.
If you’re in the market for a home and struggling, here’s what you need to know about down payment grants.
Where to find down payment grants
The federal government does not provide down payment grants to individuals. Instead, the Department of Housing and Urban Development (HUD) allocates money to states, and funds are awarded to qualified buyers at the local level.
Check out HUD’s website for down payment assistance. You’ll find a list of state and city agencies and the programs they offer. If it’s a grant you’re hoping for, start with “assistance programs.”
The site lists contact information for various local organizations and non-profit providers, which administer grant programs and other assistance.
Examples of down payment programs
The Virginia Down Payment Assistance (DPA) program provides up to ten percent of the home’s sales price to eligible buyers.
This DPA is a deferred conditional grant. That means you don’t have to pay it back, but you must sign an agreement stating that you will maintain the home as your principle residence for five-to-15 years, depending on the amount of your grant.
If you decide to sell before the period is up, then you’ll be responsible to pay back the amount in full.
The Ohio Housing Finance Agency offers first-time buyers 2.5 percent or five percent of the home’s purchase price through approved lenders. Assistance is applied to either the down payment, closing costs or other pre-closing expenses.
Recipients must remain in the home for seven years in order for the assistance to be forgiven. If you sell or refinance within seven years, the amount must be repaid.
Seattle’s Office of Housing provides up to $45,000 in down payment assistance via local nonprofits and lending institutions. The property must be located within the city limits and cannot cost more than $366,000.
Although every grant and assistance program vary, here are some general qualifications that you may be expected to meet:
- You must be a first-time buyer purchasing a primary residence.
- Income limits apply. (For the Virginia program, for example, buyer income can’t exceed 80 percent of the Area Median Income.)
- There is usually a maximum home sales price, which depends on local housing costs.
- You will likely have to attend a homebuyer counseling program. These courses help educate future homeowners about managing their financial responsibilities.
- Most times, the home must be located within certain geographic boundaries.
First-time homebuyer definition
You may be surprised to find that most agencies consider a “first-time” buyer anyone who has not had an ownership interest in a primary residence within the last three years. Others who may be eligible include:
- Single parents who only owned homes while married to their former spouses
- “Displaced homemakers” who have only owned with their spouses
- Homeowners whose mobile homes are not permanently affixed to a permanent foundation
- Homeowners whose property is not in compliance with building codes, and which could not be brought up to code for less than the cost of a complete rebuild
If you have any doubt about your first-timer status, ask a lender.
Preparing to buy
If you think that you may be eligible for down payment grants or similar programs there are some things you can do right now to put yourself in the running.
First, check your credit report and make sure your FICO score meets program and lender guidelines. The Ohio program, for example, requires a minimum credit score of 640.
Next, find a mortgage professional who is up to speed with first-time homebuyer programs in your state and city. Many programs include a list of approved lenders who can help you.
Save what you need for your closing costs and other expenses, Your loan officer or broker can point you to programs like the First Home Club Matched Savings Program. For every $1 you deposit, the savings institution deposits $4 in matching funds up to $7,500.
Understand the fine print, especially actions that could result in you having to pay back the grant. These might include taking out a home equity line of credit, refinancing, renting out the home, or selling before the required period is up.
Money is there – go get it
A 2014 NeighborWorks American study found that 70 percent of consumers had no idea that down payment assistance was available, and in fact, much of this money goes unclaimed.
Now you know about it. If you qualify, jump through the necessary hoops and claim your free money now.
How do I qualify for today’s low down payment mortgages?
Conditions in today’s housing markets favor buyers — in addition to down payment assistance, mortgage lenders can help you apply for low-down-payment loans at very affordable interest rates.