First-time homebuyers often cite the lack of down payment money as the biggest obstacle to making the transition from renter to homeowner. But these buyers may be missing an opportunity to receive down payment assistance.
Lots of buyers could benefit from down payment assistance. Buying a home takes cash for the down payment, closing costs, moving expenses and cash reserves. Even with a Federal Housing Administration mortgage that requires a low down payment, these expenses usually total several thousand dollars.
"There are a wide variety of homeownership programs that include down payment assistance," says Marietta Rodriguez, national director of homeownership programs and lending for NeighborWorks America, a nonprofit that focuses on affordable housing issues. "Most of these programs are available from municipalities or a nonprofit housing counseling agency."
Rodriguez says many people mistakenly assume down payment assistance is available only to low-income households.
"While these programs vary widely, most allow the borrowers to earn from 80 (percent) to up to 120 percent of the median income for their area," says Rodriguez. "It's important that people know that down payment help isn't a thing of the past."
Many down payment assistance programs are available to homebuyers who have some cash of their own and will use the money as a supplement.
"You don't have to be extraordinarily stretched to take advantage of the program. In fact, you are often encouraged to keep several thousand dollars in the bank for an emergency fund," Rodriguez says.
Down payment assistance qualifications
Today's down payment assistance programs, unlike some during the housing boom, are available only to borrowers who qualify for a mortgage with full documentation. In many cases, a homebuying class is required to receive down payment help.
Down payment programs can be tied to an employer or a property location. Rodriguez says some employers, nonprofit organizations and local governments offer down payment aid to teachers, police officers, first responders and health care workers to enable them to own homes where they work.
Other programs are linked to neighborhood improvement and are available only to buyers within a particular community.
For example, Wells Fargo's NeighborhoodLift and CityLift programs offer down payment assistance to homebuyers in cities that were harmed by the housing market downturn.
"We've committed $170 million and will be in 20 cities when the rollout of this program is complete," says Chris Hammond, a spokesman for Wells Fargo in San Francisco. Hundreds of buyers have been helped since the program began in early 2012, he adds.
The Wells Fargo program usually provides $15,000 in down payment assistance as a grant, which need not be repaid as long as the homebuyer lives in the residence for five years.
Homebuyers can use the money in conjunction with a mortgage from any lender. Hammond says borrowers must be qualified for the mortgage loan and earn up to 120 percent of the median income in their area.
Where to find down payment help
Rodriquez says homebuyers can find down payment assistance by checking with their city and state housing finance agencies, local nonprofit housing organizations and lenders.
"Buyers can ask lenders, especially those who work with first-time homebuyers or handle a lot of FHA loans, if they can help them identify a source for down payment assistance," Rodriguez says. "Sometimes you can qualify first for a mortgage loan and find a home and then look for down payment assistance. For other buyers, your entry point can be to contact a nonprofit organization that can help you become mortgage-ready. The organization can identify down payment assistance programs and find a lender that works with those programs."
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