One of the biggest hurdles for first time home buyers is saving for a down payment. When you buy a home, you pay a lump sum of money upfront – known as the down payment. The amount you put down is generally up to you, depending on your credit score and other qualifying factors. On average, first-time home buyers make down payments of around 6% of the loan amount. For a typical starter home of $148,527, this would be $8,912. Saving nearly $9,000 isn’t easy for most first-time buyers. But there are several options that can help you reach that goal.
Difficulties of saving for the down payment
Rising home prices and steep rent costs are making it harder for buyers to save for the upfront fees of purchasing a home. According to Zillow, it would take the typical renter almost 27 years to save for a 20% down payment on a starter home. That is why most first-time buyers put down less than 20%. Some conventional loans allow for down payments as low as 3%* – allowing the typical renter to buy a starter home after saving for 4 years. The majority of first-time buyers get help from family and friends or tap into retirement savings to finance a down payment. Of course, not all buyers have this option. If you’re funding the down payment completely on your own, saving will take much longer.
Benefits of down payment assistance
With the help of down payment assistance, home buyers can save for a larger down payment and purchase a home sooner. Typically given as grants or loans, down payment assistance can greatly reduce the upfront costs of buying a home. In some cases, it can even pay for your down payment completely. Down payment assistance also helps home buyers:
- Make a more competitive offer on a home
- Lower the overall loan amount
- Reduce future mortgage payments
Types of down payment assistance
There are four different types of down payment assistance.
- Grants – A grant is gifted money that doesn’t have to be repaid.
- Loans – Down payment assistance loans are second mortgages that you can take out to help cover the upfront down payment costs and repay over a period of time.
- Deferred Loans – Deferred loans are also second mortgages; however, they only need to be repaid once you move, sell, or refinance.
- Forgivable Loans – Forgivable loans do not need to be repaid as long as you stay in your home for a certain period of time.
Down payment assistance requirements
Your eligibility for different down payment assistance programs largely depends on the program itself. However, several programs require that you:
- Are a first-home buyer (though many programs allow for repeat buyers as well)
- Meet income limits in your area
- Meet home price limits in your area
- Take a home buyer education course
- Are purchasing a primary residence
- Work with an approved lender
Finding down payment assistance near you
Down payment assistance programs often vary per state/city, but some are offered nationwide. One way to find out what programs are offered near you is by visiting HUD’s website with a list of home buying programs in your area. The best way to find out what down payment assistance is offered in your area and what you could qualify for is by talking to your local loan officer.
Luckily, we are an approved lender for down payment assistance programs across the country. To find out what’s available near you, contact us today.
*Conventional Payment example: If you choose a $250,000, 30 year loan at a fixed rate of 3.3% (APR 3.5%), you would make 360 payments of $1,122.61. Payment stated does not include taxes and insurance, which will result in a higher payment.
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Sources: The Mortgage Reports, The Mortgage Reports, Zillow