Down Payment Assistance

Down payment assistance programs exist to help people buy a new home. There are many types of these programs and some can only be used for certain types of loans or through participating lenders. Knowing about these programs can make the home buying process just a little easier.

How can I get money for a down payment?

Income limits, the reality of how expensive buying a house can become, and the need for a down payment can make people decide to give up their dreams of owning a home. But, there are ways to get the money for down payments, closing costs, and even the cost of moving when the big day arrives.

Use Extra Funds that Come Your Way

Maybe an inheritance isn’t going to blow your way, but there are other money sources that probably do.

Tax refunds
Stimulus checks
Cash back rebate checks (from sites like Honey, Rakuten, Swagbucks, or MyPoints)
Bonuses from work
Cash from your birthday or holidays

Ask for the cash, too. If a sweater or gift card to GameStop usually comes your way for gifts, let friends and family know you’d prefer cash instead since you’re saving for a down payment.

Earn Money with Survey Sites

True, you are not going to become a millionaire with them but a survey site like Swagbucks or Inbox Dollars can help you build up your down payment nest egg a little faster in several ways.

Both are free and easy to join. With minimal effort (10-30 minutes a day), you could earn an extra $1,000 to $5,000 a year.
Both allow you to earn money by taking surveys, watching short videos, playing games, and even by trying new products or services.
Both allow you to save money by giving you coupon codes, discounts, and both reward you with cashback options from thousands of retailers and merchants.
Both allow you to upload a receipt into their website and get cash back for purchases that way as well.

Sell Items You No Longer Need

You are working toward getting a new home so what better time to get rid of the stuff that you do not need anymore? No one wants to lug a tote full of clothes that haven’t even seen the light of day for a decade or more. You may be able to sell those clothes, old jewelry, baby stuff, exercise equipment, and tea cozies that Grandma knitted to strangers who would just dearly love to have it all.

There are tons of ways to sell but some of the best may be:

Poshmark to sell all of your upscale, famous label items.
eBay lets you sell practically anything. Box things up in a lot to get more interest and to sell more, quicker.
Find local stores like Play it Again Sports that buy used sports gear, uniforms, and other items.
Sell your baby items, furniture, and the million onesies you still have at stores like Once Upon a Child.

Put Your Talents to Good Use

If you do not have the time, energy, or the will to get a second job, and who does, you can make extra money on the side with a freelance gig. This way you get to do something you enjoy doing and you do it on your own time. Sign up at Fiverr and look for jobs as a freelance writer, graphic designer, or computer coder.

Rethink Your Current Finances and Budget

Before you call a realtor or a loan officer before you fall in love with that quaint cottage at the end of the block, before you even apply for a mortgage loan at all, you have to take a look at your finances and be real with yourself.

Are you paying for services that you do not need or use anymore?
Do you spend too much money on entertainment, meals out, and things that you do not actually need?
Are you wasting money trying to keep a car running when you can simply use public transportation or in places without this service, could buy a car in better condition?

The more of your own money that you can put toward the purchase of your home, the more likely you are to be approved for loans with a favorable interest rate and lower mortgage payments.

Having a lot of your income leaking out from a poorly maintained budget will hurt your chances of getting approved for a home loan. Most have very strict debt to income ratios so the more debts you can clear before you get started, the better your chances become.

What is a down payment assist?

Down payment assistance programs can vary from state to state and may include grants or a variety of loans. Many of these programs offer some education and additional resources that are useful to the first-time buyer and may be a requirement for being approved.

How much assistance is available may depend on program limits, income limits, the location of the proposed home, and additional criteria. The assistance programs offered can include the following:

Grants. A grant is like getting free money in that it does not have to ever be repaid.
Forgivable loans. A forgivable loan is typically given to help with down payment and closing costs and might be forgiven in a period between 5 and 10 years. These are meant to boost homeownership in certain areas and are reserved for new home buyers. You may also need to meet income limits for this type of loan.
Deferred payment loans are also included in the assistance program offered by several different local agencies. With this type of loan, the amount does not need to be paid back until the first loan is paid off or the home is sold for any reason.
Both forgivable loans and deferred payment loans are zero-interest loans.
All of these assistance programs may require a minimum credit score, minimum household income, and may have additional requirements that must be met.

What are the cons of down payment assistance?

The many down payment assistance options are great for the people that need them but they may also hold them back from certain houses and from being approved for certain types of loans. There are other drawbacks to needing any of the home buyer programs.

Because they are meant for certain income limits, the amount of a first mortgage may be considerably smaller than for someone who did not need help with a down payment.
Using a down payment assistance program may imply that you may not have the financial stability to buy a home and can signal buyer weakness to sellers and to lenders.
Sellers may not accept offers that include funds from down payment assistance programs.
The program may slow down closing times and may drive up closing costs.
Down payment assistance programs may mean that you will not have money for any unpredictable expense such as a shortfall in appraisals, additional inspections, and sudden repairs.
Your monthly mortgage payments may be much higher.
You may not qualify for low-interest loans.
You may be required to carry high-priced private mortgage insurance on a conventional loan.
You may be limited to the area where you can purchase a home. Some of the down payment assistance programs are meant to focus on urban development meaning that you can only buy a home within the city limits.

Is there a down payment stimulus program?

A down payment assistance program may be available in your area. Because every state varies by the programs that they offer for a home purchase, it is important to do your research for your immediate area.

If you can find a housing counselor, they can help you with questions about programs, direct you to the right government agency and even help you decide if you are better served by conventional loans or federally backed loans.

What mortgage programs are available?

The most qualified borrowers will have the widest range of home loan options to choose from. Borrowers that do not meet minimum credit scores or income limits for conventional mortgage loans may have to look for other programs for the purchase price, closing cost, or even the down payment for the house they have always wanted to own.

FHA Loans

FHA Loans are considered to be the easiest to be approved for.
Most require just 3.5% down.
There is a maximum home purchase price that may vary by area.
Another FHA loan is available for people who want to buy a fixer-upper home which may allow the home buyer to end up with a larger home than they would otherwise qualify for.
Requires a credit score of 500 or above.
May require homebuyer education.

USDA Loans

This government-backed loan is meant to be used for homes in rural or suburban areas.
May cover 100% of the cost of buying a home including the down payment and closing costs.
Requires a credit score of 640 or above.

VA Loans

Only for veterans and their families.
No credit score or income limits are required.
Most require no down payment or private mortgage insurance.

Additional programs are available for first-time homebuyers. Some will require a homebuyer education course which is a great way to learn how payment assistance programs work, how a home loan program decides qualifications, and how to improve their current situation.

Many programs may offer ways to get into a home without additional money such as sweat equity. Ask your lender for the names of HUD-approved housing counselors for more help.