It’s frustrating to have a decent-paying job, a bright earnings future and acceptable credit and still not be able to buy a home because you lack the thousands of dollars in cash needed for a down payment and closing costs.
The dreaded down payment stops more potential homeowners cold than any other aspect of the loan process.
To read articles about down payment headaches one would think it’s only millennials who have trouble coming up with the funds.
In reality, most would-be first-time home-buyers, regardless of age, find saving up 20 percent of hundreds of thousands of dollars challenging. And, for many of the available programs a first-time-home-buyer is someone who hasn’t owned a home in 3 years!
Yes, you may qualify for a loan with a lower down payment, and even with the mandated private mortgage insurance policy added to your monthly house payment, which is usually required if you don’t have 20 percent equity(20% down), your monthly payment would most likely be less than rent for the same house. If you have a strong credit score of 740 or above you may even be able to get a conventional mortgage with 5% down programs.
Today, we’ll explore ways you can get help with the down payment on your new home.
Lenders usually stipulate that your down payment and closing cost funds must come from your savings (mutual funds, stocks, IRA and 401(K) included), proceeds from the sale of another property, assistance from government programs or non-profits, union, employers or gift money from an immediate relative.
Get help from the government
The government, from local to county, state and federal, offers programs to help Americans get into home ownership. Some of these programs are geared toward the low-income applicant while others are open to all.
Federal Home Loan Bank
The Federal Home Loan Bank offers three programs to help home-buyers with their down payments and closing costs:
- Home$tart® — Assistance up to $7,500 for borrowers who take the home-buyer education program and earn up to 80 percent of their area’s median income (find yours on HUD’s website). Unlike the aforementioned programs, these funds come in the form of a grant.
- Home$tart Plus — $15,000 to borrowers who are currently receiving public housing assistance. Borrowers must complete a financial literacy program and be income qualified.
- Native American Home-ownership Initiative (NAHI) — $15,000 to eligible Native American households to help with a down payment and closing costs.
Good Neighbor Next Door
This program falls under the auspices of the United States Department of Housing and Urban Development (HUD) and offers a discount (typically 50 percent) off the asking price of a home. The program is open to applicants in the following professions:
- Pre-Kindergarten through 12th grade teachers
- Law enforcement officers
- Emergency medical technicians
Be aware that this program only covers homes in HUD’s revitalization areas that are listed for sale through this program.
Learn more about the program and how to apply on HUD’s website.
State and local programs
FHA offers state-wide down payment grants through a variety of programs. Michigan offers several different programs through this initiative with it’s MISHDA programs, including it’s 1% DPA (Down Payment Assistance). Of course there is always FHA 3.5% down programs, and if you are a veteran and qualify financing is available through the VA benefits, including it’s 0% down.
The National Association of Local Housing Finance Agencies (NALHFA) suggests using Down-Payment Resource to find information on local assistance programs.
Finally, several labor unions, such as the Culinary Union, offer homebuying assistance programs for members.