Interest rates are very low and house prices are going up, so many people are deciding to buy a home in 2017. But how many of us are worried about funding that down payment?
New Home Buyer Grants Are Helping Renters Become Homeowners with Obtainable Down-Payment Assistance Programs
Fortunately, there are down payment assistance programs available that can make your home purchase easier. In many instances, the down-payment requirement is the biggest obstacles for renters to become homeowners. There are many 1st-time home buyer mortgage options in today’s competitive financing market. Below is more information about what down-payment assistance programs are available.
20% Down Payments May Not Be Necessary
A recent survey by Wells Fargo Home Mortgage found that 36% of Americans think it is required to have a 20% down payment to buy a home. This is not true. The average down payment today is 15% or so. But 40% of home buyers put down less than 10%, and some put down as little as 3%. Clearly home buyer grants and down-payment assistance loan programs aid the home-ownership initiative in the United states.
When considering buying a house, having the ability to show underwriters proof of monthly income is critical. If you are unable to show the lenders income documentation then you will need a no income verification mortgage which will require some type of down-payment. Otherwise if you can provide, the last two years of W2’s and current pay-stubs, then you should be able to secure a home loan with a minimal down-payment.
1. US Department of Housing and Urban Development
HUD provides grants every year to both state and local organizations through its HOME Investment Partnerships program and the Community Development Block Grant Program. These programs can be very useful for getting down payment assistance in your state.
2. FHA Loans
The first thing to know about loans backed by the Federal Housing Administration is that their loans can be closed with only a 3.5% down payment. This is a great deal and allows millions of people every year to stop renting and to buy a home.
However, the FHA program can get even sweeter if you have a relative or friend who is willing to provide you with a gift to pay for your down payment. FHA allows the entire down payment to come in the form of a gift, so you can in theory get a loan with 100% financing.
The only requirement for this program is to get a letter from your friend or relative certifying that the payment is a gift and does not need to be repaid.
Note that FHA also has a variety of down payment help programs that are available in most states. For example, in Texas, there is the My First Texas Home Taxable Mortgage Program. This program is funded through FHA and Texas and offers closing cost and down payment help of up to 5% of the loan amount.
Like many of these FHA sponsored programs, there are certain requirements. You need to be a first-time buyer, or a buyer who has not bought a home in the last three years. Your income cannot be above the median for your area, and the property cannot be more expensive than certain limits. You will need to have a 640 FICO score and DTI cannot exceed 45%.
Other programs that provide down payment help in other states often require that your income not be more than 80% of the area’s median income.
This is a new program that is available by Fannie Mae for first time and repeat home buyers. You can put as little down as 3%. This program costs less than an FHA loan. It also allows for co-borrowers who do not live in the home. So, if your parents will help you to pay the mortgage, they can, even if they do not live with you.
This program also allows the down payment to come from the seller at closing or as a gift from a friend or relative. For more helpful tips on home financing this year, read, 5 Reasons to Save for a Home Mortgage Down Payment.
4. The 1% Down Loan by Quicken
Quicken Loans came out with a 1% down loan program recently that helps many lower income borrowers buy their home. This is as close to zero-down house loans as you can get. It actually is a 3% down program but Quicken gives the buyer a 2% credit.
This program requires you to have an income that does not exceed certain limits, so not everyone will qualify. But it is one of the best low-down payment loans available. Ask your lender if they offer this program.
There also are some down payment assistance programs for specific states you should be aware of:
5. GSFA Platinum Down Payment Assistance – California
This program was created to help low income and moderate-income buyers in California to buy a home. This down-payment assistance program may provide down payment and/or closing cost help with a non-repayable gift.
Since 2010, GFA Platinum has helped 18,000 people to buy a home, and $153 million in gifts have been given. Some of the great features of this program are:
- The gift size can be up to 5% of the loan amount
- Program is not just for first time home buyers
- Minimum 640 FICO score is needed
- Available with 30 year and 15 year loans
- Refinance loans are available
This gift is not a second-mortgage and will not create a lien against the home. You do have to have an income that does not exceed program limits, and DTI cannot be above 50%.
In Orange County, California, which is one of the more expensive places to buy a home in the US, you can earn up to 120% of the median income in the area and still qualify for down payment help. For example, a buyer in Orange County making $98,000 per year may qualify for a grant of as much as 5% of the purchase price of the home.
There are plenty of low down payment and down payment help programs available. Depending upon your state, you may be able to get financial help for your down payment, especially if your income is near or below the median income for your area.
References: Down Payment Help. (n.d.). Retrieved from http://www.freddiemac.com/perspectives/danny_gardner/20150629_down_payments.html, Homeownership Vouchers from HUD https://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/programs/hcv/homeownership and GSFA Platinum Program. http://www.gsfahome.org/programs/dpa/faq.shtml