Down payment assistance programs were created to make homebuying more affordable but how exactly do they work? Nearly half of Americans say the down payment is the hardest part of buying a home. There are a lot of low down payment options such as VA loans and FHA, but still, coming up with thousands of dollars for a down payment can be tough. These down payment assistance programs can offer grants and low-interest loans to help homebuyers afford that down payment. There are specifically designed for first-time homebuyers. What the homebuyer gets into the real estate game, coming up with a down payment for their next home is a lot easier because chances are, their existing home has gained enough equity the can be rolled into the down payment for their next home.
There are over 2500 down payment assistance programs in this country and each state has its own program. Buyers can save up to $17,000 over the life of their loan by using a down payment assistance program. However, there are certain eligibility requirements and even though the programs are easy to access, not everyone qualifies.
So how do they work and who qualifies?
Most people go with a 4% to 5% down payment assistance which is generally given as a loan either paid back over the course of the mortgage or at the time the owner moves, sells, or refinances. This down payment loan can come with a 0% interest rate option while the main mortgage will come with its own interest rate close to market standards. Some programs even allow for the assistant program loan to be forgiven if the homeowner stays in the property for a certain amount of time.
Down payment assistance programs can be covered for either the down payment or for closing costs, which can also rent pretty high. However, it may not cover both. This is where the buyer can ask the seller for some compensation in order to get the deal closed.
Qualifying for the down payment assistance program.
Each state has its own limitations and conditions but generally speaking, this is for low to moderate-income providers. If you have a lot of the money already set aside in the bank or can make the down payment, chances are you won’t qualify. Down payment programs may also have an education requirement meaning that the potential buyer would need to go through homeowner classes and homeowner counseling to make sure that they understand the responsibility of owning a property.
Down payment assistance programs usually get paid back within the loan itself with a 0% interest rate option. While not every loan can be forgiven, most will need to be repaid in full at the time of sale, transfer, early payoff, or refinance.
Note: it’s important to understand recapture tax, which can also apply if the buyer starts earning a lot more income and no longer falls within the program’s income limits. This is very unusual and not common but it is something to be aware of. If this is the case, the homeowner selling the home may have to pay back 50% of their gains or 6.25% of the original loan amount, whichever is lower.
Most people are qualified for this type of assistance program but only 10% of homebuyers ever use it. There are a lot of programs and options out there that can make homebuying much more affordable. Call me today and let’s find out if you’re qualified for the California down payment assistance program.
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