Down payment assistance comes in vanilla, chocolate, and sometime with sprinkles. Ok, you get the idea it comes in many flavors. Most homebuyer assistance programs can be used for a down payment or closing costs. But generally, not for both.
Below are the most common homebuyer assistance programs:
- Silent Second Mortgage
- Homebuyer Grant
A Silent Second Mortgage program is named as such, because there are no payments due for the life of the first mortgage in most cases. These programs do create a lien against the property, and usually require a pay off if you sell, or refinance the home.
The Homebuyer Grant program will not create a lien against the property, and are not expected to be paid back. There is no interest rate, and no payments associated with the grant.
Generally, both of these programs have standard traits across the board.
- They may or may not require that you be a first-time buyer.
- Have a minimum credit score.
- Have maximum loan amount.
- Have income limits
A first time homebuyer for almost all programs requires that you have not owned a home in the last 3 years. First time homebuyer programs will typically require you submit your last 3 years of tax returns to confirm.
The minimum credit score for most programs tend to be between 620 and 640 but will vary between all programs.
The goal of homebuyer assistance programs is to help low to moderate income homebuyers afford the high cost of a down payment and or closing costs on a home. The income limits of the program will determine the amount of home you can qualify for.
The Maximum Income Limit can be calculated differently depending on which program you use. This calculation may or may not include your income. An example of this could be income from a part time job, overtime, or bonuses that you do not receive consistently enough to qualify for the program.
There are many down payment assistance programs available. Your city may offer a program, the county you live in may offer a program. Most States have a State Housing Finance Agency that will help anyone looking for down payment assistance. The State Agency may also be able to direct you to other city, and county programs that are available.
Homebuyer Assistance, or down payment assistance is NOT Free Money.
It is common that these programs come with higher interest rates, and higher fees. Most of these programs have attractive benefits like zero interest rate, or forgiveness after so many years.
It is important that you understand how the assistance can be applied to your home buying costs so that there are no surprises at the closing table.
Your loan officer’s job is to present you with all the facts, and all the options, so you can decide if you like any of the flavors, they are offering.
By R. Jones
