Covering the upfront costs of buying real estate is no easy feat. These days, saving up for a 20% down payment, or even lower down payment options, is becoming harder than ever as home prices rise. In addition, homebuyers also need to account for closing costs, as well as the other miscellaneous expenses that come along with buying a home in today's real estate market, such as moving fees.
Not everyone can pay for these expenses out of their savings account. However, mortgage down payment assistance does exist for those who need it. Read on below to learn more about your options including grants, low interest rate loans and even government-backed options like FHA loans as an alternative to conventional loans.
Ready to start the mortgage process? Visit Credible to compare rates and lenders.
How can I get help with a down payment on a house?
The first thing to know about home loan down payment assistance is that it can come in a few different forms. In general, payment assistance programs work in one of five ways. We've laid them out below so that you can get a sense of what type of program might be right for you.
- Mortgage down payment grants: A grant is a one-time, lump-sum form of payment assistance that can be applied to your down payment or your closing costs. Notably, grants do not have to be repaid.
- Low-interest loans: Low-interest loans work similarly to grants, however, the money you’re given must be repaid within a few years.
- Deferred-payment loans: Deferred-payment loans must also be repaid, but the balance of the loan does not come due until you go to sell the house or complete a mortgage refinance.
- Forgivable loans: Under certain circumstances, forgivable loans do not need to be repaid. They are usually forgiven after a certain number of years, as long as you are still living in the home and are in good standing with your monthly payments.
- Government loans: Certain loan types have down payment assistance built in. One loan type, FHA loans, offer the opportunity to make a 3.5% down payment, which is lower than is required for most conventional loans. It also allows borrowers with a lower credit score to obtain a mortgage. Other government-backed loans, such as the USDA loan and VA loans, even allow homebuyers to pay nothing toward the down payment of their home.
If you want to compare rates, use an online mortgage calculator to determine what your potential monthly payments would be.
How do I qualify for down payment assistance?
Not everyone qualifies for down payment assistance. Typically, payment assistance programs are geared toward the first-time homebuyer who has not previously been through the mortgage process or those who have not owned a home within the last three years. But there are also some mortgage down payment programs that are meant for those with a lower household income.
Most assistance programs have specific eligibility requirements that need to be met in order to qualify. Many have specific loan limits or minimum credit score requirements. For instance, the FHA mortgage loan limits in 2021 are $356,462 in most areas of the country and $822,375 in certain high-cost areas, and rise each year as home prices rise.
If you’re wondering whether you might qualify for down payment assistance, visit Credible to be put in touch with an experienced mortgage lender and get your questions answered.
Is getting down payment assistance a good idea in the long run?
Like any other major financial decision, getting down payment assistance has its advantages and disadvantages. Here are some of the major pros and cons that you need to be aware of before starting this process. Read them over so that you have a better idea of what to expect.
- You’ll save money upfront: The major benefit of using a home buyers program is that you’ll save money on the upfront costs of buying a home. If you don’t have much cash on hand, it can help ease the financial burden.
- You may be offered better mortgage rates: Some assistance programs also allow qualifying buyers to access better mortgage rates than they would be given otherwise, which can help lower your monthly payments. Often, they offer access to a loan program with below-market, fixed rates.
- You may spend more in the long run: If your down payment assistance loan comes with interest, you will likely end up spending more in the long run than you would have if you paid the money upfront.
- You could face certain limitations: Often, these programs come with certain stipulations that need to be met in order for the loan to be forgiven. For example, you may be expected to live in your home for a certain number of years. If you were to move early, you will have to pay the money back.
There are various types of assistance programs available for homebuyers who may not have the money in their savings account. From the repeat to the first-time homebuyer, loan experts can help walk you through what is available and the best options for you.
To find the best rate, start by using Credible. Credible can show you current mortgage rates from multiple mortgage lenders and help you make an informed decision regarding your home loan.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at firstname.lastname@example.org and your question might be answered by Credible in our Money Expert column.