June 8, 2021
Some borrowers worry that they can’t save up enough money for their home loan down payment. Fortunately, many states feature programs that can help these borrowers who may otherwise qualify for an affordable home loan but struggle with their down payment requirement.
If you are considering an FHA mortgage but need down payment help, there are programs offered by state and local agencies that may be able to help you soften the economic blow of that 3.5% down payment requirement imposed by the FHA.
Not all down payment assistance meets FHA loan guidelines–you’ll need to make sure that whatever the source of your down payment assistance, you meet the sourcing requirements for the money.
That means having a clear paper trail from the person providing your down payment assistance. Your lender will require documentation showing where the money has come from, and where it has been since it was provided to you.
This is to make sure the money does not come from a prohibited source. What kind of prohibited sources? The seller of the property is one. Your down payment also cannot come from non-collateralized loans like pink slip loans or payday loans.
There are other issues, but the information below can help you find the right kind of down payment help you need.
Most states offer some kind of home purchase or homeownership program that may include down payment help in the form of grants, second mortgages, or loans that wind up being forgivable after a specific amount of time has passed. Check your state government official site to find these programs.
Some programs are aimed at first-time home buyers. Some are designed to help veterans, and some offer more generous income caps or other restrictions if you purchase property in a targeted area.
Some consumers fail to realize a large number of programs offer down payment assistance to those who have not owned a primary residence within the last three years. These borrowers may qualify as first-time buyers under such programs even though they have technically owned a home in the past.
Depending on the state you live in and other variables, you may qualify for down payment help via a non-repayable grant. Some assistance is provided as a second mortgage–one that may be forgivable if you stay in the home for a certain length of time, which will vary depending on the program.
Another down payment assistance option? A loan that must be repaid. When it gets repaid depends on the guidelines for that program but some have deferred payments, others have payments due when the original loan is paid in full, the home is sold, etc. It is best to fully understand the terms and conditions of your program before you commit.
Some down payment assistance programs feature choices to expand the range of borrowers they serve. You may, depending on the program, qualify for one kind of help from your chosen agency or provider but not other types. This is sometimes due to income caps imposed by that down payment program.
It may also come in the form of purchase price limits on the transaction–these limits are sometimes a condition of getting a down payment grant or loan.
Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we’ll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner’s Insurance
Step 9: What to Expect at Closing
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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