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6 Down Payment Assistance Programs For First-Time Home Buyers

7-minute read

Most people dream of owning their own home. Unfortunately, making a down payment can stop some people in their pursuit of this dream. However, here’s some good news: if you’re a first-time home buyer, you may qualify for down payment assistance. This help is provided through a government or private program.

Today, we’ll look at six different down payment assistance programs you may qualify for when you buy your first home. We’ll also cover what exactly a down payment assistance program is and how you can take advantage of them.

Overview: What Are Down Payment Assistance Programs?

Before we talk about down payment assistance, we should cover what exactly a down payment is. A down payment is the first payment you make toward your home. Most lenders calculate the required down payment as a percentage of your total loan value.

For example, if you want to buy a home for $100,000 with a 20% down payment, you’d bring $20,000 to your closing. Your lender then gives you a loan worth $80,000, which you pay back over time. The down payment requirement may present a significant financial burden depending on the price of the home you want to buy.

As the name suggests, down payment assistance helps you cover your down payment. Down payment assistance can come from local charities, state and federal government bodies, or individual mortgage lenders. In some cases, your labor union or employer can also provide you with down payment assistance.

One important point to note is that in this article, we’re only looking at programs available to first-time home buyers. Most government and charity programs have strict definitions of what a first-time home buyer is. If you haven’t had any kind of homeownership in the last three years, most state, federal, and nonprofit programs consider you a first-time buyer. You cannot own any form of rental or investment property and get first-time home buyer down payment assistance, even if you don’t live in the property.

Options For Down Payment Assistance As A First-Time Home Buyer

Now, let’s take a look at some down payment assistance programs that you might be able to use as a first-time homebuyer.

DPA Loans

If you aren’t sure that you can cover a down payment on your own, you may want to consider a down payment assistance (DPA) loan. DPA loans are unique because, unlike other types of loans, you can use them for your down payment. DPA loans can come in three major forms: second mortgages, deferred payments, and forgiveness loans.

If you take out a second mortgage, you must make your payments at the same time that you pay off your current loan. You have two mortgage payments a month instead of one, and you need to keep up with both.

With a deferred payment schedule, you can put off your payments while you pay down your primary loan. However, you must pay back your deferred loan when you sell your home, refinance, or pay off your primary mortgage.

Forgiveness loans expire after a certain number of years living in your home. If you stay in your home until the loan expires, you don’t need to pay back the loan. If you move, you'll need to refinance or pay off your primary mortgage before the expiration date.

HUD Home Buyer Programs

The Department of Housing and Urban Development (HUD) has a list of resources you can use to help fund a down payment and buy a home. HUD can help you access both financial and educational resources available to you based on your location. If you know that you need down payment assistance, but you aren’t sure where to start, HUD’s website is a great place to start.

Most of the programs listed on HUD’s website are specific to local communities. You can check out programs available in your location by visiting HUD’s local program list and selecting your state. From there, you can view information on financial assistance and instructions on how to apply for aid. You can also read more about local laws that apply to your home sale, including predatory lending practices and environmental regulations.

DPA Grants

In addition to DPA loans, you may also qualify for a DPA grant to cover the cost of your down payment. DPA grants are different than DPA loans. You must repay a loan at some point — you don’t need to repay a grant. Program requirements for DPA grants can vary by year, and most come from local governments and charities.

Good Neighbor Next Door

If you’re a public service professional or educator looking for a way to make homeownership more affordable, consider the Good Neighbor Next Door program. Though the Good Neighbor Next Door program, you can buy a HUD-owned property with a generous 50% discount. HUD-owned homes are foreclosures, and already very affordable without the discount. To view a list of Good Neighbor Next Door properties, visit the HUD Home Store.

The Good Neighbor Next Door program is only open to a select few professions, including:

Teachers. You may participate in Good Neighbor Next Door as a teacher if you’re an accredited full-time instructor at a public or private school. Your school must provide direct services to students, and you must teach students in grades pre-K through 12. In addition, you must also serve students in the area where you’re buying a home.

Law enforcement officers. To participate in the program as a law enforcement officer, you must have full-time law enforcement employment with a recognized state or federal governing body. You may also be a full-time Indian tribal officer in certain areas. You must have sworn to uphold state, federal, tribal, and municipal laws. You must also have the power to make arrests for law violations.

Firefighter/Emergency Medical Technicians. You may take part in the program as a firefighter or emergency medical technician if you have full-time employment with a state, federal, or local government. Like teachers, you must provide emergency services to the area where you buy the home.

In addition to profession requirements, you also must agree to the following terms: 

  • You must agree to continue working in your current profession for at least another year past closing.
  • You must live in the home you buy as your primary residence for at least three years.
  • You must certify that you haven’t owned a home in the last year.

Keep in mind that not every lender offers loans for Good Neighbor Next Door homes. For example, you cannot currently fund a Good Neighbor Next Door home sale with a loan from Quicken Loans. If you’re planning on buying a home through this program, make sure you look for a lender who offers loans and support for these homes.

Tax Deductions

Unfortunately, the Housing and Economic Recovery Act’s credit for first-time home buyers is no longer available. As of 2010, you cannot claim a $7,500 credit on your federal income taxes the year you buy your home. However, this doesn’t mean that there are no ways that you can save on your taxes when you become a homeowner.

Homeowners can save money through tax deductions. Deductions lessen your overall tax burden by reducing the amount of income you must pay tax on. If your home is worth less than $750,000, you may deduct your homeowner’s insurance from your federal taxes. You can also deduct anything you pay in private mortgage insurance. Additional state tax discounts may also be available depending on your income, the value of your home, and where you live.

Keep in mind that tax laws change fairly regularly. If you think you have a home-related deduction you can claim, speak with a qualified CPA.

Government-Backed Loans

Government-backed loans can help first-time home buyers buy a home with a lower down payment. These loans have insurance from the federal government, which makes them less risky for lenders. This allows the lender to give mortgages to people with lower credit scores and less money down than conventional loan options.

There are a few different types of government-backed loans. Each loan type has its own criteria you and your home must meet to qualify. Let’s take a look at the three types of government loans now.

FHA loans. FHA loans have insurance from the Federal Housing Administration. With an FHA loan, you can buy a home with as little as 3.5% down and a credit score of 580 or higher. If you can bring at least 10% down to your closing, you may be able to buy a home with a credit score as low as 500.

USDA loans. USDA loans are loans for people who want to buy a home in a rural or suburban area. Your home must be in a zone the UDSA deems “adequately rural” to qualify. You also cannot earn more than 115% of your county’s median income, and your property must not be a working farm. With a USDA loan, you can buy a home with no down payment.

VA loans. VA loans are home loans for current members of the Armed Forces, veterans, and certain spouses of deceased service members. You must meet service requirements before you can get a VA loan. Like a USDA loan, a VA loan allows you to buy a home with no money down.

Summary

First-time home buyers can use a few different programs to help cover their down payment. To qualify as a first-time home buyer, you must not have any type of homeownership on your record for the last three years.

Down payment assistance (DPA) loans and grants can help supplement your down payment savings. DPA loans can come in a few forms, including a second mortgage and a forgiveness loan. If you get a DPA grant, you don’t need to pay the money back in the future. DPA grants usually come from local and state programs.

The Department of Housing and Urban Development (HUD) has a list of resources you can use to buy a home depending on your state. Government-backed loans and programs like Good Neighbor Next Door can also make your down payment more affordable. Deductions can help you divert more money to your mortgage and save during tax season.

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