In these tough economic times, the dream of home ownership may feel unattainable. With mortgage interest rates shooting up to over seven percent and expected to stay there through the beginning of 2024, homes cost more now than they have in years. Factor in the high home prices we’ve seen throughout the country and the prospect of homeownership for those entering the market can seem bleak.
However, all hope is not lost. Programs exist to help individuals and families attain the goal of home ownership. A down payment assistance (DPA) program can help you get the home of your dreams at a price you can afford. In this article, we’ll discuss what you need to know about down payment assistance programs including: what they are, how to qualify, and what options exist to help you turn your dream of home ownership into a reality.
What Is a Down Payment Assistance (DPA) Program?
Down payment assistance programs help prospective homeowners purchase a home without needing to save as much for their down payment. These programs are usually state-sponsored and can take many forms. DPA Programs are designed to help qualified home buyers who don’t qualify for zero-down payment loans or may not have been able to save enough for a traditional down payment. Checking eligibility for Down Payment Assistance (DPA) Programs can be the final factor in potential homebuyers being able to proceed with their home purchase.
Who Qualifies for Down Payment Assistance Programs?
While the programs and requirements vary by state and zip code, you’ll find that many of them share similar qualifications. Many down payment assistance programs are targeted toward first-time homebuyers, but there are also options for repeat buyers out there. Exact numbers vary, but most programs will have requirements based on some or all the following:
- Minimum Credit Score
- Maximum Income Level
- Buyer Investment
- Maximum Home Price
- Participation in Home Buyer Education Classes
- Home-Type Restrictions
If you meet the basic requirements and are otherwise qualified for a home mortgage loan, you will likely meet many of the requirements for a DPA program. Use the Down Payment Resource tool to find what programs you qualify for in your area.
What Types of Down Payment Assistance Programs are Available?
Down payment assistance programs are a great resource to have for all potential homebuyers, but the types of programs vary, so it is important for buyers to know the differences. Here are the most common DPA programs:
- Grants: These are considered some of the most valuable DPA programs because you don’t have to pay anything back. The grant functions as a gift to your down payment. In some cases, these grants create a second lien on your home, which prevents you from selling or mortgaging your home until it has been paid. Make sure your mortgage lender is aware of the grant to avoid a “silent second mortgage.”
- Forgivable Loans: These are zero-percent interest second mortgages, that you do not have to pay back if you stay in your home for the required number of years. Participating lenders will often forgive the loan after five years, but the required period could last as long as 20 years. Typically, this second mortgage is big enough to cover your entire down payment.
- Deferred Loans: Like forgivable loans, these second mortgages typically cover the sum of your down payment. However, unlike a forgivable loan, you must pay a deferred loan back when you sell or refinance your home.
- Low-Interest Loans: Another option is a low-interest loan on a second mortgage. These loans are paid back on a regular schedule and are not forgiven, but they can offer you a low or no interest rate.
Down Payment Assistance Programs Can Help You Get into Your New Home
While interest rates and home prices may be soaring, assistance is available for those that are still looking to realize their dream of home ownership. Guardian Mortgage currently participates in several state down payment assistance programs, one nationwide program, and we also encourage you to use the finder tool from Down Payment Resource to identify programs you qualify for in your area.
If you are interested in learning more about down payment assistance and whether you qualify, check out our Down Payment Assistance (DPA) Program FAQs or contact a Guardian Mortgage professional for more information.