Down Payment Assistance First Time Buyers
The amount of funding available for down payment assistance (DPA) is dependent on the agency, organization or lender providing funds. Grant funding for DPA can be up to 5% of the purchase price with no capped amount in some states. While other states offer funding for as much as 20% of sales price, up to a set limit. Similarly, a handful of DPAs provide funding up to a certain dollar amount, such as $10,000 or $15,000. Whatever DPA you consider using, the higher the amount the less likely those funds are a grant (no repayment). To learn more, keep reading to discover why down payment assistance first time buyers programs may be right for you.
Seller concessions give first time buyers added flexibility in the amount of money needed to close on a new home. Typically, negotiations between the buyer and seller include cost benefits afforded to the buyer, such as assistance with closing costs. These additional expenses add to the amount needed to finalize the purchase, such as:
- Discount points
- Processing fees
- Origination fees
- Title search fees
- Title attorney costs
- Flood certifications
- Local or state taxes
- Transfer fees
On average, closing costs equal 1-2% of the home’s purchase price. When added to a down payment requirement, many first time buyers are unable to complete the transaction. In addition, seller concessions cannot be included for down payment assistance. However, their inclusion is a critical component of making homeownership affordable for a vast number of individuals.
In order to qualify for financial help, down payment assistance first time buyers programs come with certain requirements. These requirements are set by each DPA and establishes certain program guidelines. The following may be part of the qualification process:
- Earning no more than the income limit, for all borrowers
- Reside in the home as your primary residence
- Complete a homebuyer education course/counseling (either in person or online)
- Qualify with a good credit standing
- Meet specific home price/mortgage amount guidelines
In addition, some first time buyers may be limited to location, home size constraints, as well as occupant qualifications. To qualify, lenders will require verification of income, credit history and currently available assets. However, some down payment assistance first time buyers lenders are less restrictive in terms of minimum qualifications.
DPA programs help to ease the financial burden of buying a home, but there are few out-of-pocket expenses at closing. However, utilizing a DPA may cost you more in the long run for a variety of reasons.
First, if a program requires repayment of the DPA funding, you may pay an extra loan payment each month. In addition to your mortgage payment of principal, interest, taxes, and insurance.
Down payment assistance programs can be in the form of a grant or a deferred loan. If deferred, repayment of the loan is not due until the home is sold or refinanced. If granted, repayment is required if the home is sold or refinanced, subject to a minimum occupancy period. However, in either case this may reduce your total equity should the sale or refinance event take place.
In addition to repaying down payment assistance loans, the interest rate on your mortgage may be slightly higher. Some lenders view prospective homebuyers as a higher risk when they need down payment assistance, justifying a higher interest rate. A small increase in rate may not be noticeable each month. However, you could pay substantially more over the life of your loan.
Finally, lenders may charge additional fees for using a DPA, typically in the form of an origination or funding charge. Be sure to discuss these charges prior to finalizing the new mortgage to ensure you aren’t paying unnecessary costs.
Finding a Lender
Getting the most out of your DPA program is the ability to work with a lender who understands your needs. In addition is able to handle all of the details and doesn’t over charge for the help. Locating the right lender can come in a variety of ways, including referrals from a friend, family member, or co-worker. Similarly, your real estate agent or financial advisor may be able to point you in the right direction.
If you can’t rely on those around you to offer up lender options, don’t worry. There are several resources that can help you find a lender with down payment assistance first time buyers programs available. The majority of state housing agencies offer search functions on their websites to meet this need. Simply enter into the search function the key information such as location, sales price and program. Alternatively, some websites pull together DPA program availability from across the country and offer the same search functionality. Either resource, in addition to referrals from those you trust, is a simple way to find a qualified lender
Just because you locate a lender with an available DPA doesn’t mean that should be the end of your search. As with any other type of major purchase, it is important to shop around. Lenders may have access to the same DPA first time buyers programs, but they are likely to have varied requirements. Be sure to take the time to do your research before committing to one lender over another.
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