Down Payment Assistance
A down payment plays a huge role in financing your home purchase. It is the part of the purchase price paid in cash upfront, reducing the amount of loan or mortgage.
From a lender’s prospective the more money you put down the less risk of a foreclosure on your property. Even though most lenders are insured against losses from foreclosures, it still cost them money if you default on your mortgage, and the lenders with many foreclosures have to pay higher insurance premiums.
Unfortunately many individuals do not find it impossible to save enough cash for a down payment, nor do they know where to turn to get accurate information or help with their down payment. Fortunately for them there are two types of down payment assistance program that can help provide cash for your down payment.
Two types of down payment assistance
The first type is from charity/nonprofit 501c3 organizations. This down payment assistance programs does not require you be a first time homebuyer and is based upon certain criteria factors relating to the seller’s contribution.
Basically the seller must agree to make a donation to the non profit organization equal to the amount being gifted to the buyer at closing. What occurs is basically an exchange of paper, with the seller making a contribution that is later deducted from their proceeds. These funds are later wired to the non profit/ 501c3 organization as a donation.
Prior to the closing the nonprofit organization will contribute to the buyer a down payment equal to the seller’s commitment.
Government grants make up the second type of down payment assistance program. They have no seller conditions or contribution requirements and cater only to first time home buyers. This typically means a home buyer could not have owned a home three year prior to the current purchase. Another requirement to satisfy government assistance is, your family income must meet the stipulated minimum, which varies depending upon the number of dependents and a median income for the area in which you intend to purchase.
Although some government grant programs do require repayment in monthly payments, most typically don’t. The funds granted usually sit as a second mortgage on the home until the house is either sold or forgiven by the government.
Here is an overview of the three most important requirements needed in order to secure government down payment assistance.
- Meet the median income requirements established for your area of interest.
- Must be able to qualify and be approved for a low interest mortgage loan.
- As a first time home buyer you cannot have owned a home within the last three years.