You've done it; you found the home you've been dreaming about for years. It's everything you ever wanted, and then some. You've met with the real estate agent, the bank, and the seller, and have worked out everything. The only thing standing in the way of your dream house is the down payment. Depending on which type of loan or financing option you chose to purchase your new home, your down payment could range anywhere from 3% to 20% of the purchase price. This could be a decent amount of money to come up with on short notice. This article will go over various ways you can get the money you need for your down payment and get into your new home quicker.
National Homebuyers Fund
The National Homebuyers Fund (NHF) is a non-profit public assistance benefit program that was established in 2002. To date, they have helped over 35,000 people purchase a home by providing down payment assistance options. They offer support in the form of a grant, and this grant can cover down payments and closing costs up to five percent of the home's value. This grant is available to anyone, and you don't have to be a first-time homebuyer to qualify.
There are programs aimed at first-time homebuyers that allow them to pay no or a very low down payment on their home loan. A few of these programs will be offered by an individual bank or lender, and there are several offered through the government. The HomePath Ready Buyer program by Fannie Mae will give first-time homebuyers up to three percent of the total purchase price to put toward the closing costs.
An FHA loan is a loan through the Federal Housing Administration will require a smaller down payment and closing costs than traditional loans. The down payment is 3.5% of the purchase cost, and mortgage insurance is included in the monthly total. This loan will allow a gift from a family member, charity, or grant to cover 100 percent of the down payment.
In addition, many states offer down payment assistance grants that can be used with your FHA loan. See the additional resources section for links to the FHA down payment assistance portal.
Another loan option with no down payment is a loan through the United States Department of Agriculture (USDA). The USDA will guarantee a mortgage that is issued through a local lender, and this will lower interest rates and make a zero down payment. However, if you choose to put no money down, you will have to pay a mortgage insurance premium. They offer direct loans for low and very low-income families with down payments as low as one percent of the purchase cost. The USDA program also provides grants and loans for home improvement projects and renovations.
Veterans Affairs Loans
A Veterans Affairs (VA) Loan is a loan that is provided to eligible surviving spouses, current service members, and Veterans. A portion of the loan is guaranteed by the Department of Veteran's Affairs, and it is designed to help you buy or build, fix up, keep your home, or adapt a home so that it will suit your needs. The loan is given through a bank or mortgage company, and they work with the Department of Veterans Affairs to give you better terms and rates for your home loan.
Good Neighbor Next Door
The deparment of Housing and Urban Development (HUD) sponsors a great home purchase assistance program called "Good Neighbor Next Door". This program focuses on providing housing opportunities for law enforcement, emergency medical technicians, firefighters, and teachers. You must commit to living in the home for at least 36 months, and you could receive up to half-off the listing price of the home. The homes that are for sale were backed by the FHA and foreclosed on. The houses are located in low-income areas with a high number of FHA-backed foreclosed homes.
Mortgage Insurance (PMI)
Mortgage Insurance is special insurance that will repay a mortgage if the borrower defaults. PMI is extremely attractive to a lender because it reduces their risks. For this reason, lenders may allow you to negotiate a much smaller down payment when you are willing to pay PMI. Although mortgage insurance is technically not "down payment assistance", the down payment reduction you can negotiate could be as low as 1% to 5%. PMI can often make the difference between a down payment that is out of reach and one that is right within your budget.
Ask Your Lender or Realtor
A final option is to schedule a meeting with your real estate agent or bank lender and see if they can point you in the right direction for any grants or down payment assistance programs. They usually have a network of these programs they can provide you with as well as help finding out which ones you will be approved for. If you have any friends or family who recently bought homes, ask how they did it and if they can recommend any programs.
Buying your dream home shouldn't be a stressful endevour. It is a milestone in many people's lives and should be celebrated as such. Take your time and research. Shop around and find the best option to suit your needs, and talk to your lenders. They are usually an excellent but underutilized resource to assist you in the search for a grant or program that will be ideal for you.