Down Payment Assistance Programs
What To Know About Down Payment Programs
There are many down payment assistance programs available and program availability, rules, and terms can vary and change constantly. While most programs have limits on income, there are some that do not. Most also have geographical limitations, but there are a couple state wide programs and even nationwide. I will work with you to determine how much is needed to utilize the best program(s) available to get you into your new home!
The Give and Take with Down Payment Programs
As the saying goes, nothing good comes free. Well the same is typically true with down payment programs. Most of the programs available have terms less favorable than if you didn't need to utilize assistance. Often, terms depend on the amount of assistance received. For example, if you elect to receive 3.5% in down payment assistance, you may have an interest rate .50% above market rate and at 5% assistance, you may have a rate 1% above market. However, depending on where your new home is located, there may be a program available that would allow use of market rates. Regardless of the program used, one constant is that these programs do add another layer to your approval which will slow down turn time. Depending on the program, it typically isn't much but it is worth noting and the program will have to be approved by the lender and underwriting. So be sure to keep that in mind when deciding if a down payment program is right for you.
Are all programs based on income? If so, what are the income limits?"While MOST program do have income restrictions on use, there are some that do not. It is very typical, however, that there are more favorable terms for lower income borrowers. Some examples of favorable terms for lower income borrowers include, but are not limited to, lower rates, forgivable assistance. higher amounts of assistance, etc. For those programs that are limited on household income, the programs typically limit buyers to 80% of area median income as defined buy the Department of Housing and Urban Development (HUD). The link to limits in your area can be found here: https://www.huduser.gov/portal/datasets/il.html
I am pre-approved with another lender but they don't provide down payment assistance. Can I get the assistance elsewhere and still use my lender?No. The assistance and loan go hand in hand. The same lender will have to handle both parts of the loan. Depending on how the assistance is structured, often times there are lenders that are unable to participate due to how their organization is structured. Many programs are limited to direct and/or correspondant lenders and aren't eligible for use by mortgage brokers.
My lender said they can't utilize a specific program. Are they lying to me?Likely they are telling you the truth. Many of these programs are limited to how the lending organization is structured. For example, many of these programs aren't eligible for use by mortgage brokers because they don't lend their own money. There are also lenders who simply choose not to participate in down payment assistance programs due to the extra work, risk, or whatever their reason may be.
I can qualify for a loan, does that mean I automatically qualify for down payment assistance?"No it does not. These programs have additional requirements that must be met. Not only do you have to qualify for the loan, you will also have to qualify for the assistance. You may qualify for a loan but not the assistance and vice versa.
Do I have to pay back the assistance?Usually no, but it depends. This can vary with each program. Often (especially with the lower income borrowers) assistance is zero interest and zero payments and is forgiven after a certain period of time (often 3-5 years). Often higher income buyers utilizing assitance will have a low repayment option. Bottome line, however, is it just depends on which program you use. We will discuss the best options for your individual situation.
Are there restrictions that come with utilizing assitance?Yes. Many of them are structured as a forgivable 2nd mortgage. This means that if you were to sell, payoff, or refinance your loan prior to the terms specified with the assistance, you may owe a portion of the assistance back. There are usually options that allow refinancing with permission from the provider of the assistance. While rare, there can be programs without any restrictions post closing. There is such a program in Ohio which we are approved to offer.
Do I have to be a first time home buyer to qualify for assistance?Usually no, but it just depends on the organization that provides the assistance. Similar to student grants or scholarships, the provider typically can write in whatever rules and restrictions they desire for the assistance.