If you’re looking to buy a home there is one major cost you should consider (other than the home price)—the down payment.
The down payment is a percentage paid upfront for the purchase of your home.
Depending on what type of mortgage you have and your credit history, the down payment may differ but you can expect it to be significant.
But don’t let that hold you back from buying a house. Some lenders may offer down payment assistance programs.
We’ll explain down payment assistance, how it works, the pros and cons and who to reach out to for qualified experience so you can get started.
What is down payment assistance?
Down payment assistance is a type of financial assistance that brings down the total cost of your down payment for your home mortgage.
Typically with down payments, the more you’re able to put down, the better off you’ll be as you’ll end up paying less in your monthly mortgage payments.
When you’re looking to purchase a home for say, $250,000 with a 20% down payment, your down payment would be $50,000.
The great news is that down payment assistance programs help home buyers afford the down payment for the home they want.
The federal government backs these programs and works with lending agencies to make the cost more affordable.
How does it work?
There are four main types of down payment assistance programs.
- Grants: provided by the government and can cover up to 100% of the down payment, if eligible.
- Home Loans: DPA loans work as a second mortgage that may require monthly payments.
- Deferred Loans: deferred loans also work as a second mortgage, however, you won’t have to make any payment until you move, sell or refinance your home.
- Forgivable Loans: these loans work as a second mortgage as well but can be forgiven after a certain amount of years. However, you only have to make payments if you move, sell or refinance too soon.
It’s also important to know that if you receive a grant or mortgage from a federal government program, you’ll be required to select an approved program lender.
Pros and cons of a DPA
With any financial assistance program, there are pros and cons you should consider before making the decision to take advantage of them.
- Affordable home ownership
- No PMI (Premium Mortgage Insurance)
- Shorter home buying process (since you’ll need to save less)
- Lower monthly mortgage payments
- Build equity quicker
- Possibly higher interest rates
- Residency restrictions and limitations
- Possibly strict eligibility requirements
- Possibly slow closing processes
Which mortgages work with down payment assistance?
Some of the most common loan programs that work with down payment assistance are backed by federal government agencies.
There are three common loans that provide down payment assistance programs.
- FHA Loans: funded by the Federal Housing Administration. If you’re unsure which type of loan you’d like but know you will need to apply for a down payment assistance program, you can start by searching for FHA-approved lenders.
- VA Loans: funded by the Veterans Affairs. VA loans are only available to active duty members, veterans, and surviving spouses.
- USDA Loans: funded by the United States Department of Agriculture, help low-moderate home buyers purchase homes in rural and urban areas.
Public lenders can also be approved for down payment assistance, so check out and compare all lenders near you.
How to qualify
If you have a home in mind and are ready to take the next step, it’s important that you’re prepared.
Eligibility for the assistance varies state by state, but there are typically five main requirements to be approved for down payment assistance.
- First-time home buyers (not all programs)
- Minimum credit score of 660
- A short, 20 minute home-buying educational course
- Income must meet program requirements (not all programs)
- Low debt-income ratio
Along with those requirements, there are other factors that may be taken into consideration depending on your provider.
Some programs are only offered to specific areas, which can restrict where you’re looking to buy.
They can also be particular in regards to employment and military experience, meaning some providers only lend to teachers, firefighters, police officers, veterans, or active-duty service members.
It’s imperative you reach out to an experienced and participating lender to ask about their specific requirements for assistance.
For example, Austin Capital Mortgage allows all homebuyers to use their down payment assistance program and has no income limits.
Get started with Austin Capital Mortgage
If you’re ready to start the home-buying journey, reach out to a qualified home-buying advisor.
Austin Capital Mortgage is well-known for assisting customers achieve homeownership with ease in Texas, Colorado and Florida.
Their down payment assistance program is unlike others, with requirements that are built to help you, and not squeeze every last penny.
Their DPA program includes:
No income limits
You’re eligible to apply no matter where you fall on the income spectrum.
No need to be a first-time buyer
Whether this is your first home or third home, you can still apply for the program.
Having a co-signer can help buyers to meet the minimum credit score and receive better interest rates.
Loan limits that follow the FHA Guidelines
This means you won’t be as restricted in finding the home of your dreams as other DPA programs.
660 credit score
A minimum 660 credit score means your interest rate will be kept low and furthermore, you’ll be paying less in monthly mortgage payments.
Purchasing a home is an exciting journey and while it can be costly, you shouldn’t let that hold you back.
We want to help you achieve your dream home without breaking the bank.
Reach out to Austin Capital Mortgage today and ask about our down payment assistance.