The amount of money a borrower must have for a down payment and closing costs is one of the largest obstacles many buyers face to owning a home. Home buyers who need assistance with a down payment may take advantage of a few options. Along with several local programs that offer grants, down payment assistance loans provide borrowers with a junior loan to cover closing costs.
Many buyers make the mistake of assuming down payment assistance is only available to low-income buyers. Programs are varied, and most allow borrowers to earn between 80% and 120% of the median income in the area.
The following is an overview of popular down payment assistance loans available. Request information from a Loan Specialist in your area for similar programs that are available for your state.
Down payment assistance is still available
The Economic Downturn affected just about everyone’s credit in one way or another, making it difficult to build good credit. But help is still available for homebuyers looking for an affordable way to purchase a home with almost no money down, if they know where to look.
With borrowers trying to get back on their feet, lenders understand the challenges of meeting the requirements of a down payment. To overcome these hurdles, banks have created a growing number of Down Payment Assistance Programs. From interest-free second mortgages to grants and special loans, banks are finding ways for the average Joe to purchase a home with little money down. These types of loans still have limitations but offer hope for buyers and offer statewide Down Payment Assistant’s to answer any questions.
Wells Fargo's NeighborhoodLIFT and CityLIFT Programs
These programs, sponsored by Wells Fargo, offer down payment assistance to buyers in cities hit especially hard by the downturn in the housing market. This program is only offered in select areas and typically provide up to $30,000 in down payment assistance as a grant, which means the money does not need to be repaid if the buyer remains in the home for at least five years.
The grant is provided at a 0% interest rate, and 20% is forgiven for each year for five years. If the home is sold, foreclosed, refinanced, and not owner-occupied or the title is transferred within the first 5 years, it becomes a loan and the prorated balance must be repaid.
Federal Home Loan Bank Programs
The Federal Home Loan Bank is owned by several financial institutions. The bank provides first-time home buyers with two different programs: the Individual Development and Empowerment Account (IDEA) Program, and the Workforce Initiative Subsidy for Homeownership (WISH) program. Both provide a matching grant of $3 for every $1 the homeowner saves for a down payment.
FHA Access Loan Program
This program allows buyers to get a loan for 103% of the property's sale price. It combines an FHA first mortgage -- which requires a 3% down payment -- and an Access 2000 loan, which offers a second mortgage for 6% of the home's sale price. This loan program does not require approval from the main lender, but there are income and loan limits.
Loans Through Local Housing Development Corporations
There are several local programs that provide buyers with down payment assistance and loans.
To find additional programs in your area, check with your city housing finance agency, a lender or a local nonprofit housing organization.