How Do Down Payment Assistance Programs Work?
Down Payment Assistance and grant programs are typically provided by local or state housing authorities, most mortgage lenders, or nonprofit organization. A set amount of funds provided to qualified home buyers help cover the down payment on a new home assisting many borrowers into their new home. Buyers would often use personal funds towards a down payment when buying a home.
These funds you receive from a down payment program are one of three things; a grant, a interest free loan, or a debt you pay off over the life of the loan. When qualifications are met for the grant or interest free loans, these funds often have no repayment guidelines. These provide you with the funds you would have had to pull our of pocket otherwise. Some programs require that the funds come as a debit or loan, often as 2nd mortgage. These funds would require the borrower to repay the funds over a certain time frame, and are paid through your standard monthly mortgage payment. These funds would also require payoff if you were ever to sell the home and still owed on that loan. It is important to understand what type of down payment assistance you are receiving.
Are you Eligible for a DPA or Grant?
As good as it sounds, unfortunately not everyone will qualify. Each state with its own regulations, along with program requirements may determine you ineligible for a DPA or Grant. In most circumstances the loans/grants are based off of your income, credit, and how much home you’re buying. Typically your Area Medium Income (AMI) will be the largest determining factor. The AMI in Salt Lake City Utah stands at about 51%-54% AMI, requiring that your income be at or below this AMI in order to qualify. There is no need to be discouraged, some areas and states have an AMI as high as 120%.
As some may assume, “I probably have to be a first-time homebuyer”, this is inaccurate. Some providers will have those requirements but others allow any home purchase to be approved. Most DPA require the buyer to take residence in the home to qualify, eliminating investment properties.
What about the Elephant in the room, CREDIT?
Down payment programs have a large window of opportunity for all types of borrowers. Homebuyers who otherwise may never compete in the market are large beneficiaries to these programs. Borrowers approved for a mortgages recently will most likely qualify for a DPA. Credit approvals for down payment programs range from low 620’s to high 740’s. Your credit will help determine the type of program you qualify for, benefits for higher credit and more. If your credit is lower many institutions have ways you can raise your credit in a few months time, depending on the severity of your score. By raising your credit this will allow you to qualify for better programs, rates and benefits all around.
Learn more here about Down Payment Grants fit to your needs here.