Bridging The Gap: How Can Down Payment Assistance Make Your Home Dreams A Reality?

A down payment is the amount of a home's purchase price paid upfront rather than the amount lent to you by a bank or mortgage lender.

The average down payment for first-time homebuyers in 2023 was just 8%, as the National Association of Realtors reported. This can be a big hurdle to overcome for many prospective homebuyers, but down payment assistance programs (DPAs) help fill in the blanks.

What Is Down Payment Assistance?

Simply put, Down Payment Assistance refers to any grant or loan intended to help homebuyers increase their available funds at the beginning of purchasing a home, allowing them to borrow less. These programs can come from government agencies, private lenders, or other providers. To qualify, you’ll need to meet specific eligibility requirements, and often, you’ll need to obtain your mortgage through a participating lender.

Who Is Eligible For Down Payment Assistance?

First-time homebuyers must take advantage of DPA programs. Most of these programs need the house to be the primary residence of the homebuyers. Some could mandate that the borrower complete a course on a homebuyer education course. Additional requirements may include the following: 

• Income

• Credit score

• Type of loan

• Property Location

• Purchase price

Speak to an experienced mortgage lender like Total Mortgage for the best DPA program.

Types Of Down Payment Assistance 

Grants: 

DPAs are gifts that do not require repayment but are typically restricted to first-time homebuyers with low-to-moderate incomes. Lenders can be private or from a federal, state, or local government agency.

The Maine State Housing Authority will lend to eligible homeowners via its First Home Loan Program up to $5,000 for use towards the down payment and closing costs/prepaid escrows if certain income guidelines are met and the homebuyer education program is completed before the mortgage loan closing. 

Freddie Mac has a database that lists DPA programs across the US. 

Many commercial banks also have grant programs. Bank of America will offer homebuyers up to 3% of their purchase price, not exceeding $10k toward a down payment for borrowers who meet certain conditions.

Forgivable loans: 

Forgivable loans are available for first-time homebuyers in many cities, counties, and states. These loans do not have to be repaid if you remain in your home for several years. However, you might be required to work with a partner lender, which could limit your ability to shop around. 

One such program, the HomeFirst down payment program from the New York City Department of Housing Preservation and Development (HPD), offers qualified first-time homebuyers up to $100,000 in forgivable loans for a down payment or closing costs. Homeowners must live in the home for 10 to 15 years, depending on the size of their loan, to have this debt forgiven.

You can find details on local programs on your state housing agency website or verify with Freddie Mac's DPAOne database.

Low-interest, no-interest and deferred loans: 

Some DPA programs operate as loans with low or zero interest rates. Others allow borrowers to delay repaying the loan until the end of the mortgage term.

The Washington State Housing Finance Commission offers the Home Advantage program, which provides buyers with a second mortgage to help with a down payment. This loan has a 0% interest rate, and payments are deferred for 30 years.

DPA Alternatives: Options for Homebuyers Who Don’t Qualify for DPA 

If you do not qualify for a down payment assistance program, many lenders also have low-down-payment mortgage programs. 

For instance, Ally Bank has a HomeReady loan that can be as low as 3% down. Applicants cannot earn over 80% of the area median income and must attend a homeownership education course. Ally doesn't charge lender fee costs, so your closing costs would decrease even though you don't meet the requirements for a HomeReady mortgage. 

Additionally, SoFi offers mortgage solutions with a 3% down for first-time homebuyers who meet the criteria. SoFi offers a lower 30-year fixed rate than other loans, and if you buy a home with SoFi Real Estate, you can get up to $9,500 cash back and a 0.25% rate reduction. 

The total down payment for government-backed mortgages like VA, USDA, and FHA loans is usually less. That said, they come with their specific requirements, and how much cash you need to spend on your down payment can depend upon several factors, such as a credit score, DTI, etc.

Conclusion 

A major barrier to homeownership, particularly for first-time homebuyers, is saving up for the down payment. As most down payment assistance is restricted to certain types of loans or lenders, you need to see what's out there in the early stages of shopping for a mortgage. 

Get in touch with Total Mortgage experts to seek expert advice on different DPA programs. We can help you analyze the options available and make the right decision. 

FAQs 

What is down payment assistance?

Any program designed to help borrowers increase the amount they contribute upfront toward the purchase price is considered down payment assistance (DPA). Many banks offer DPA programs, and options are available from government agencies and nonprofits, too.

How much is the average down payment? 

As per the online real estate data, the median down payment in January 2024 was 14.2%.

Who qualifies for down payment assistance? 

While down payment assistance is usually intended for first-time or low-income homebuyers, there are programs with broader parameters. Contact Total Mortgage and ask what might be available.