The Three Types of Down Payment Assistance
March 24, 2021
As of 2019, 68% of homebuyers are making down payments of less than 20%. That means in addition to the chunk of money required upfront, borrowers need to pay additionally for the mortgage insurance, which is another deterrent to buying a home.
This is where Down Payment Assistance Programs come in. With the help of these programs, long time renters can make up the shortfall and purchase their first home. In addition, they can help potential homebuyers put down 20% on their home and avoid paying mortgage insurance.
Keep in mind that after the Housing and Economic Recovery Act of 2008, seller-funded down payment programs were outlawed. HUD rules state that anyone with a financial stake in the loan or its outcome may not offer any kind of down payment assistance. The law does, however, allow states and local government agencies to help borrowers finance their homes with second mortgages and grants.
Down Payment Assistance comes in three forms:
1. Grants
State and local agencies in addition to housing authorities offer eligible homebuyers down payment grants that can be put towards paying mortgage expenses like down payments and closing costs.
2. Second Mortgages
Many down payment assistance programs come in the form of a second mortgage with low- or zero-interest rates. These are usually deferred loans that need to be paid when the home is paid off, sold, or refinanced. In some cases, the loan is completely forgiven after a certain period.
3. MCC’s
A Mortgage Credit Certificate (MCC) is a tax credit issued by state or local government that allows a taxpayer to claim some portion of the mortgage interest paid. Keep in mind that this is not a tax deduction; it provides a dollar-for-dollar tax credit to homebuyers for the interest paid during a given tax year.
Buying a home is expensive enough as it is. Having a little help with the payments can go a long way. FHA.com has done some of the heavy lifting by compiling a list of Down Payment Assistance programs in all states. Look at the list find a program that will benefit you and bring you a step closer to owning your own home!
------------------------------
RELATED VIDEOS:
Consider the Benefits and Risks of a Joint Loan
Borrowers Should Know About the Origination Fee
Everyone Needs to Pay Their Property Tax
FHA Loan Articles
October 31, 2024When buying a home for the first time, it helps to know how long the process can take. How do you know if your appraisal report is delayed if you don’t know how long the FHA allows for the process to be completed? How long does it take to get from the final offer to closing day? A “typical” FHA loan process may take up to 45 days from start to finish. Several factors can influence this timeline.
October 30, 2024Just because an FHA loan is designed to be more lenient with FICO scores and require a lower down payment doesn’t mean the house you buy with that loan is less than ideal. Did you know that FHA loans have minimum property standards to ensure the home is safe and livable? Those standards require the home to have an “economic life” for the entire term of the loan so you can freely sell the property later on if you choose to do so.
October 29, 2024Buying a home with an FHA mortgage is a major life decision, and preparation is essential before you start house hunting or consider making an offer on a property.
How to get started? In the early stages, establishing your budget and how much work you need to do on your credit is key. But once you have gotten past the initial phase of that planning you’ll want to consider the house itself and what you want from it.
October 25, 2024Mixed-use properties combine residential and commercial spaces. Some borrowers applying for FHA home loans want to know if purchasing such a property using an FHA single-family home loan is possible. The FHA does allow the use of its loans for mixed-use properties, but certain conditions must be met.
October 24, 2024Buying your first home is a major milestone. If you use an FHA mortgage to buy your home, you’ll have two types of insurance to consider. One type is the FHA-required mortgage insurance premium, which is paid for 11 years or the loan's lifetime, depending on your down payment, loan term, and other variables.
