How does one go from dreaming about owning their first home to holding a set of keys your hands? After all, one of the most challenging parts of buying a home for the first time is coming up with a down payment without any existing equity. Fortunately for you, there are thousands of down payment assistance programs across the country. There also are government backed loan programs available with low down payment options in 2022. Let’s take a closer look at what down payment help is available so you can make 2023 the year you bought your first home.

Overview of Home-Ownership Program? 

There are a variety of home-ownership programs available across the country that include loans, grants, tax credits and other programs that can help you to get a down payment. These programs also are available to help to cover closing costs and fees, so you can get to closing faster. These programs are frequently offered by state housing finance agencies (HFA). Also, cities and counties offer various down payment help programs with criteria that are based upon local home prices and local median income. Housing authorities, nonprofit organizations and employers also offer some down payment programs. See tips for first time home-buyers.

How to Qualify for Home Buyer Grants in 2022

Qualifications vary, but both you as the home buyer and the home itself have to qualify for the specific program. These home-ownership programs are made for owner occupants only; no investment property purchases are allowed. You will usually need to qualify for the mortgage through standard underwriting qualifications and complete a home-buying education course. Typical eligibility requirements include the sales price of the home, a certain level of income and your history of home-ownership.

Some programs are only open to first time buyers; what this means will vary by program. For example, some down-payment assistance programs will define ‘first time buyer’ as someone who has not owned a home for three or five years. But there are some programs that do not require you to be a first-time buyer by any standard.

The Most Common Down Payment Assistance Programs

The first type is the general down payment assistance program. These are usually second or third mortgages or grants. You may enjoy such benefits as zero percent interest rates, deferred payments on the second mortgage, and forgivable loans. The assistance you receive can be a few thousand or tens of thousands of dollars that you can use for a down payment, closing costs, or repairs. In some cases, you may not have to pay back the assistance at all; in other cases, when you sell the home, you could have to pay back part of the equity that you have earned.

Even if you are buying in a high cost market, you still may be able to find down payment assistance. The benefits and eligibility requirements are typically adjusted based upon the local home prices and median income.

If you are buying a home in an area that is targeted by a housing finance agency, you could get more help, including more lenient income standards, higher down payment amounts, and the first-time home-buyer requirement could be waived. Learn more about home buying grants: Good Neighbor Next Door, Dollar Homes, Native American Direct Loan and more.

Affordable First Mortgages

Some of the larger state housing finance agencies offer first mortgages in addition to down payment assistance. These programs often give you a below market rate on your mortgage, and could have lower closing costs, fees and no need for mortgage insurance.

These programs are usually funded by state housing finance agencies and can subsidize part of the interest to offer rates under normal market rates. This can lower your buying costs and your payments each month.

For example, the USDA features two first mortgage programs called the Rural Direct Loan and the Rural Guaranteed Loan. Both are used to help people with lower and moderate incomes to buy a home in a rural part of the country. The funds can be used to buy, build or repair a home.

Mortgage Credit Certificates

This is an annual federal income tax credit that helps the first-time home-buyer offset part of the mortgage interest as a way to qualify for the mortgage loan. Note that it is a tax credit and not a tax deduction. It means that an MCC helps you to reduce your total tax bill dollar for dollar. The mortgage credit that you can get depends upon the local or state government that issues the MCC. Note that it is capped at a maximum of $2000 per year by IRS rules.

Low Down Payment Government Mortgage Programs

Another major way that 1st-time home buyers can get help with a down payment is working with a government backed program such as FHA. These government backed loans are insured by the Federal Housing Administration, and only require a 3.5% down payment for most people. Learn about buying a home with a FHA loan.

If you have a credit score of 580 or higher, you should be able to qualify for a 3.5% down payment. Also, the program allows for gifts to pay for your down payment. If you have a relative who is willing to provide you with financial help to get your first home, he or she can gift you the down payment. In that way, you can get into a home with 100% financing in some cases, and only need to come up with closing costs.

With one or more of the above options, you should be able to get assistance with a down payment or keeping the down payment very low, making it easier to get into your first home.

References: Down Payment Programs 101: The 3 Most Common Homebuyer Programs. (2017). Retrieved from https://downpaymentresource.com/know-your-programs-an-overview-of-the-three-most-common-homebuyer-assistance-programs/

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