Buying a home is an exciting milestone, but for many, the challenge of saving for a down payment can feel daunting. Fortunately, there are numerous down payment assistance programs available to help bridge the gap and make homeownership more attainable!

In this blog, we’ll cover common questions about these programs and provide essential information you need to take advantage of these valuable resources. Whether you’re a first-time homebuyer or looking for the next place to call home, understanding your options can pave the way to securing your dream home with greater ease and confidence.

What is down payment assistance?

Down payment assistance (DPA) refers to financial aid provided to homebuyers to help cover the initial down payment required to purchase a home. DPA can come from various sources, including government programs, non-profit organizations, and private entities.

These programs may have specific eligibility criteria, such as income limits, credit score requirements, or restrictions on the type of property being purchased.

Glendale Floor Plan, Single Family Homes Collection, Lakeside at Trappe Community, Trappe, Maryland

Who is eligible for down payment assistance?

Every down payment assistance program will have its own specific requirements. However, there are common criteria that many programs use to determine eligibility:

1. Income Limits

Many DPA programs have income limits to ensure assistance is provided to those who need it most. These limits are often based on the area’s median income (AMI) and can vary significantly by location. Typically, programs target low- to moderate-income households, with income thresholds set as a percentage of the AMI, such as 80% or 120%.

For example, let’s say you live in a city where the AMI for a family of four is $80,000 per year. A DPA program in your area might set an income limit at 80% of the AMI to determine eligibility. In this case, to qualify for the DPA program, your household income would need to be at or below $64,000 per year.

Some programs may have higher income limits, such as 120% of the AMI. Using the same example, your household income would need to be at or below $96,000 per year to qualify.

2. Credit Score Requirements

While credit score requirements can vary between DPA programs, a minimum score of 620 to 660 or higher is typical. These requirements help ensure borrowers have a sufficient credit history to manage mortgage payments responsibly.

3. First-Time Homebuyer Status

Many DPA programs are specifically designed for first-time homebuyers. A first-time homebuyer is generally defined as someone who has not owned a home in the past three years. You can’t own any form of rental or investment property either, even if you don’t occupy the property. Some programs may have broader definitions or additional criteria, such as owning a home but experiencing significant financial hardship.

4. Property Requirements

DPA programs typically apply to primary residences and may exclude investment properties or vacation homes. Some programs may also restrict the maximum purchase price of the home.

5. Completion of Homebuyer Education

Many programs require applicants to complete a homebuyer education course. These courses provide valuable information on the homebuying process, budgeting, and maintaining homeownership, helping to ensure that buyers are well-prepared for the responsibilities of owning a home.

Ponderosa Floor Plan, Laurel Collection, Blossom Rock Community, Apache Junction, Arizona

What types of down payment assistance programs are available?

There are several types of DPA programs available to help homebuyers, including:

• Grants: Funds that do not need to be repaid and are typically offered by government agencies and non-profits.
• Forgivable loans: Loans that are forgiven if the homeowner meets specific criteria, such as living in the home for a set number of years.
• Deferred loans: Loans with delayed repayment, often without interest, until the homeowner sells or refinances the home.
• Employer contributions: Financial assistance provided by employers, which can include grants or matching funds.
• Matched savings programs: Matched savings programs, also known as individual development accounts, allow prospective homebuyers to deposit money into an account with a bank, government agency, or community organization and have that institution match the amount.

These can come from various sources, such as:

1. Government-Sponsored Programs

Federal Programs

• FHA Down Payment Assistance: The Federal Housing Administration (FHA) offers programs that work with approved lenders to provide down payment assistance through grants or loans.
• VA Loans: The Department of Veterans Affairs (VA) offers no-down payment mortgage options for eligible veterans, active-duty service members, and certain members of the National Guard and Reserves.
• USDA Loans: The US Department of Agriculture (USDA) offers no-down-payment loans for eligible rural homebuyers with low to moderate incomes.

State and Local Programs

Many states and municipalities offer their own DPA programs. These can include grants, forgivable loans, and deferred loans, often with specific eligibility criteria based on location and income.

2. Non-Profit Organization Programs

Non-profit organizations often provide down payment assistance to promote affordable housing and support community development. These programs might include grants or low-interest loans, often requiring the recipient to complete homebuyer education courses.

3. Employer-Assisted Housing Programs

Some employers, like large corporations, universities, or hospitals, may offer down payment assistance as part of their employee benefits package. This assistance may come in the form of grants, forgivable loans, or matching funds to employees when purchasing a home. These programs often require the employee to remain with the company for a certain period to benefit fully.

Sequoia Floor Plan, Duplex Collection, Chinook Gate Community, Airdrie, Alberta

Are there any drawbacks or risks associated with down payment assistance?

While down payment assistance can be incredibly helpful for homebuyers, it’s important to consider any potential drawbacks or risks before utilizing one of the programs.

• Review all the conditions, such as residency requirements or restrictions on selling the home within a certain timeframe.
• Learn how receiving assistance can impact the terms of your mortgage, such as a higher interest rate or additional fees.
• Consider the long-term financial implications, including repayment obligations or tax implications.
• Keep in mind that some DPA programs have limited funding or eligibility criteria, meaning not all applicants will qualify.

How does down payment assistance affect my mortgage application?

Receiving DPA may affect the type of mortgage you qualify for and the terms offered by the lender. Some programs may require borrowers to use specific mortgage products or lenders, limiting your options. Additionally, lenders may consider DPA when evaluating your debt-to-income ratio, which could impact your eligibility for certain loan programs or affect your interest rate.

Can I combine down payment assistance programs?

Yes, in many cases, you can combine multiple DPA programs to maximize your benefits. Combining programs can help cover a larger portion of your down payment and closing costs, making homeownership more affordable.

It’s essential to check the specific requirements and restrictions of each program to ensure they can be used together. Some programs may have limitations on combining assistance, such as restrictions on the types of programs that can be stacked or maximum assistance amounts.

Combining multiple programs requires plenty of research, careful planning, and coordination with lenders and program administrations, but can be a valuable strategy for homebuyers to maximize their benefits.

How do I find down payment assistance programs in my area?

Start by researching government websites. The U.S. Department of Housing and Urban Development (HUD) has a list of local home buying programs by state. Every state runs an HFA (Housing Finance Agency) that helps homeowners, and you can visit your state’s website to learn what DPA options you might be eligible for. Your local city or county website may have information on any programs they offer, and your mortgage lender may be able to provide guidance on assistance programs as well.

Spieth Floor Plan, Cottage Collection, Kissing Tree Community, San Marcos, Texas

Down payment assistance programs offer valuable support to homebuyers, making the dream of homeownership a reality for many who might otherwise struggle to save for a down payment.

Remember to explore all available options, understand the terms and conditions of each program, and seek assistance from trusted professionals to make the most of DPA opportunities.

Find the Best Place to Call Home

We’re proud to help our homebuyers feel comfortable, informed, and in good hands from the first time we connect to long after they’ve moved into their new home. Our team is continuously committed to doing the right thing, cultivating an exceptional customer experience, and creating the best places to call home.

So why wait? Start your journey to homeownership today with Brookfield Residential! Explore where we build and connect with our sales team when you’re ready to learn more. We’ll be expecting you!