You can get help buying a home
How does down payment assistance work?
In most cases, your state’s housing finance agency oversees the loans and grants for down payment assistance that help coordinate and support affordable housing. These government entities may have names such as “Department of Housing” or “Housing Finance Agency” or “Housing Authority” or “Development Agency,” among others.
Who qualifies for down payment assistance?
Eligibility criteria vary, but programs typically target low- to moderate-income homebuyers and first-time homebuyers. Down payment assistance programs may also assist special categories such as military service members or other professions, residents in rural areas, homebuyers with family members who have disabilities, or homebuyers of American, African, or Latino descent, among others.
What types of homes qualify for down payment assistance?
Down payment assistance loans and grants are typically provided for single-family homes, whether they are detached houses, condos, or co-ops, or any home used as a primary residence, and not as a second home, investment property, or vacation home.
How is down payment assistance provided?
There are many forms of down payment assistance programs as loans, grants, and hybrids. Here are some examples:
- Grants: Grants for down payments do not have to be repaid, including grants for first-time homebuyers. These grants may come with a loan from a credit union or bank. Some loans may convert to grants after a short period, such as five years, with no repayment required after that time.
- Deferred loans: Many down payment assistance programs are loans with deferred payments, in addition to low interest rates. These loans are typically deferred for up to 30 years. You are not required to pay anything on the loan until you pay off the mortgage or until you sell, move, or refinance the home loan. These loans are usually larger amounts, such as up to 5% of the purchase price, or up to $100,000.
- 0% loans: These loans carry no interest but must be repaid within a certain time frame, such as 120 months. This means that each payment you make toward the 0% loan reduces the principal.
- Forgivable loans: Some 0% down payment assistance loans are forgivable over time as long as the owner remains in the home. The amount borrowed decreases by a certain percentage after a set number of years. For example, there may be a 15-year loan on up to 20% of the purchase price of the home, which is forgiven at a rate of 1/15 over 15 years.
- Shared equity: In this case, the owner borrows a percentage of the home price to use for the down payment. In some cases, the loan may not accrue interest and may be deferred. When the owner sells the home, they must repay the original loan amount and a portion of the equity earned as the home value rises.
- Second mortgages: These second mortgage loans for down payment assistance generally require a monthly payment but usually at very low interest rates.
- Low to no down payment: Some loans offer a low to no down payment option, which essentially works as a form of assistance.
Source: https://www.thebalancemoney.com/how-does-down-payment-assistance-work-2395237
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