Many people want to buy their own house. However, not everyone can afford the down payment needed to buy the property. So what is a down payment? Basically, when we discuss purchasing a house, a down payment is the initial payment that a homebuyer makes. That said, how much a person will pay upfront will be based on a number of different things.
Yes, it may seem that the down payment is too high to afford at first. The good news is people looking for assistance with this payment have options! Let’s discuss a few of the popular ways people can get help with a down payment.
Understanding Down Payment Support
It’s helpful to know that there are several forms of support available for people who need help with a down payment. Nevertheless, anyone interested in getting support should know how these options work. That way, people can really take advantage of the option that suits them best!
Various Down Payment Support Options
People have different situations, which is why everybody requires different assistance. Fortunately, those who want help with a down payment have a variety of options, like the following:
- Forgivable Mortgage Loans
- Low-Interest Loans
- Individual Development Accounts
- Deferred-Payment Loans
Forgivable Mortgage Loans
Usually, this loan is forgiven by the lenders after five years. Because of this, these loans generally won’t need to be paid back. However, the only way people will not be required to make repayment is if the conditions are fulfilled. These conditions include the buyer’s residing in the home for a certain amount of time. Nonetheless, anyone seeking this opportunity should know that every lender is unique. This means that actual timelines and rules could be very different. Having said that, people can pay the full down payment with the money from this loan. This is definitely an advantage of this type of second mortgage loan. In fact, another advantage of this mortgage is that the interest rate on it is zero percent!
This loan has a very low interest rate and, in certain cases, none at all. The fact that this loan occasionally has a zero interest rate is really an advantage. Having said that, it still needs to be paid back on a monthly basis. This is a kind of second loan and when borrowers get this loan, it can go towards handling the down payment that is due. Usually the second mortgage offer comes from the borrower’s lender or others.
Individual Development Accounts.
An individual development account is created to help individuals save towards a targeted amount. In this case, the buyer’s goal is to acquire the down payment amount for home ownership. Thus, buyers have the option to deposit money into an account with a bank, organization, or government body. After the financial institution gets the funds, they will match money with the person who made the payment. Next, the total amount will be applied to the down payment. To clarify, the total sum consists of both the institution’s and the home buyer’s deposits.
Not all options for down payments are created equally. For example, when it comes to grants, this type of assistance never requires repayment. This is one reason grants rank among the most popular types of help with the down payment. However, it’s important for people to read their contracts carefully before signing. That’s because in some cases, the grant-giving organization will place a second lien on the person’s home.
Like the previous options, the requirements are determined by the lender and loan type. For a deferred-payment loan, people are able to postpone their loan payments. Thus, the second loan won’t need to be repaid until one of the following events takes place:
- The borrower pays down the first loan
- The borrower sells the house
- The borrower moves
- The borrower refinances the first mortgage
How does this tie into being down payment assistance? Well the loan funds can be used towards the down payment. Even though the borrower owes the money, they can wait for a good time to repay it. For example, let’s say a borrower sells their house. That will mean that the borrower is required to repay the loan. However, some proceeds from that sale can be used to make that payment!
Options Besides Those Listed Earlier
People looking to receive down payment assistance should find options that suit their situation. All the options we discussed earlier may be useful to many different people. That said, the following options are also appealing and comparable to down payment aid:
Veterans Affairs (VA) Loans
VA loans make it possible for people to obtain a mortgage without having to make any kind of down payment. Having said that, people need to keep in mind that the conditions for these types of loans essentially depend on who is lending the money. Thus, people’s agreements may differ based on their lender’s rules.
Federal Housing Administration (FHA) Loans
FHA loans allow buyers to make a down payment that is lower than what they would need to make with a traditional loan. That’s because the down payment for this loan may be as low as 3.5%. Having said that, people need to keep in mind that this low rate is only available for people who meet the requirements.
Now that we’ve discussed some of the available opportunities, let’s answer some typical questions about down payment aid.
Where Can A Person Find Opportunities for Down Payment Support?
Here are some locations where people can look for down payment aid:
- Housing counselors that are HUD-approved
- The United States Department of Housing and Urban Development (HUD)
- State government agencies
- Local government agencies
How Can Someone Be Eligible for Down Payment Help?
Like we said earlier, according to the lender, different conditions will apply. That said, there are a few typical conditions, and they are:
- A person should have a credit score that qualifies them.
- A person needs to reside in a house in a certain neighborhood.
- A person needs to stay in the house for a set amount of time.
- A person needs to take a home-buying finance class.
- A person needs to take their debt-to-income ratio (DTI) into account.
When Can People Expect to Receive Assistance for Their Down Payment?
Overall, people should speak with the bank to fully understand the timeline they may face before deciding on this program. Having said that, how much time a person will have to wait before getting assistance will be based on different variables. These variables consist of the loan type, the lender, the kind of down payment help, and more.
The home-buying process is not easy, especially when it comes to the costs that come with it. Generally, home buyers struggle with the down payment as a cost. Needless to say, not everyone can afford to pay the down payment, which is why some people need help with it. However, in this article, we discussed a few opportunities for down payment support. That includes forgivable mortgage loans, low-interest loans, matched savings programs, grants, and deferred-payment loans.
Along with the loans above, people can also try to take advantage of VA loans or FHA loans. The good news is that those looking for help have support options out there. These options can potentially help people pay for their down payment. Overall, it’s wise for anyone to look for the assistance they need until they find one that suits them best!