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When it comes to buying a home, there are a lot of things to take into account. After all, becoming a homeowner is one of the biggest—albeit worthwhile and investment-savvy—financial decisions most people make in their lifetimes. And one of the most daunting parts of purchasing a home, particularly for first-timers, can be the down payment.
The fact of the matter is, there’s really no need to start sweating over your potential down payment. Why? Because there are programs out there that can help you purchase your first home or dream home without coming out of pocket with a hefty down payment that drains your savings. You can learn all about how to get down payment assistance when buying your home from this handy video, and we’ll go over some of the broad strokes you need to know in this article.
What Is Down Payment Assistance?
Down payment assistance (DPA) is exactly what it sounds like: a program, loan, or grant that helps to cover some or all of the down payment on a home.
For people who can’t or don’t want to put down a large chunk of cash to buy their home, these programs allow them to purchase a property with little to no money out of pocket. Most programs are available only for first-time homebuyers—the people most likely to need help putting up a sizable down payment.
Note that a “first-time homebuyer” is generally defined as someone who hasn’t owned a home within the past three years. That means you can leverage down payment assistance if you’re a former homeowner who’s been renting for a bit but wants to own your own place again.
Every DPA program is different, but funds can usually be used only to cover your down payment and sometimes closing costs, and some programs require you to contribute some of your own money along with it.
DPA programs are great if you need help bridging the gap between what you can pay and what you want/need to pay. Down payment assistance is a smart way to purchase your new home.
Types of Down Payment Assistance
DPA typically falls into two general categories—grants and loans—with one of the big differences being whether or not the money is “free” or has to be paid back. The New Way Mortgage experts cover everything you need to know about this topic in the video below.
Usually provided by a government agency—federal, state, or local—or a nonprofit entity, these are gifts for homebuyers who need help covering their down payments. As gifts, they do not have to be repaid. If you’re eligible for a down payment assistance grant, you should absolutely take advantage of it.
As with any loan, those used for down payment assistance must be paid back, and some with interest. Some programs forgive the interest if you own the home for a certain amount of time, for example three to five years. Each program is different, so it’s important to work with a mortgage pro, like the crew here at New Way Mortgage, to find the best option for your specific scenario.
Getting Your Home with DPA
Buying a home with down payment assistance isn’t all that different from buying a home without it. You will, of course, need to disclose that you’re receiving down payment assistance to all parties involved when making an offer. The agents, the seller, your lender, and anyone else who is part of your purchasing process needs to know.
This shouldn’t hinder your chances of getting an accepted offer, as DPA is commonplace, but it’s still something everyone needs to be aware of. In general, purchasing a home with down payment assistance is very much like a regular home purchase. The big difference is the dual process of getting approved for both the home loan and DPA, so it can take a bit longer.
As with your home loan, there are stipulations and limits to whether or not you’re eligible for down payment assistance. They’re going to vary widely depending on where you live, what your personal finances are, and a few other variables. For example, there are special programs and loan types for military families, first responders, teachers, and other public servants that are available only to people in those specific fields.
You’ll also need to prove that you can qualify for a mortgage, have a debt-to-income ratio in line with lending guidelines, and have a decent credit score—620 is typically the lower limit for receiving down payment assistance—much like you need to do when applying for a mortgage. So putting in the research and reaching out to professionals is really the only way to ensure that you get the right DPA.
Finding the Right DPA for You
Navigating the ins and outs of researching, applying for, and receiving down payment assistance is a process you’ll want to have an expert guiding you through. There are many options to consider, so having a pro at your fingertips is key to finding the right down payment assistance program.
The strategic team at New Way Mortgage can help you find different ways to navigate your down payment and get you in your dream home. Give us a call today at 916-465-6639 to chat about your 2022 homeownership goals.