Down Payment Struggles? Expert Tips on Down Payment Assistance

Figuring out down payment assistance

Scraping and saving for a down payment on a house presents one of the biggest challenges to potential borrowers.

The current affordability crisis makes this especially difficult, and that’s before factoring in the financial and economic uncertainties facing us all. However, leveraging down payment assistance (DPA) could help you clear those hurdles.

Two experts give their DPA tips and advice to help turn prospective home buyers into homeowners. Answers have been edited for brevity and clarity.

How can home buyers best leverage down payment assistance (DPA) programs?

Miki Adams, president at CBC Mortgage Agency:

If you’re a first-time home buyer, definitely connect with a HUD-approved housing counselor and work on developing and understanding the budget that you’ll need to own a home. Look at the ways you can save to build that home purchase fund that you might need and consider down payment assistance.

Don’t wait because I don’t think that we’ll have an answer to the affordability issues soon. Not just the affordability of the house itself, but with closing costs rising, etc., they should make sure to educate themselves on everything that’s involved.

Finding a program that gives you above and beyond the minimum required down payment is one way to utilize down payment assistance programs, whether it’s with the Chenoa Fund or with any other state or local DPA program.

Jessie Jackson, senior vice president at Cornerstone Home Lending:

Always ask for it as an option. Even if you have all of your money for your down payment and your closing costs. For people who saved for a long time, that’s a huge portion of what they have. I try to communicate to consider the option of leaving that saved money somewhere, working for them, and utilizing the DPA opportunity.

If you qualify, you can use the DPA money to help you buy the home and still have savings for whatever comes up after you are a homeowner. With the affordability crisis making it hard for so many to buy houses right now, DPA may have never been more important.

What are some top things people don’t know about down payment assistance?

Adams: The first thing that comes to my mind is not understanding whether the down payment assistance has to be repaid. Oftentimes, we’ll find that borrowers think DPA is a gift or grant. It’s really important that the borrower asks questions to understand the specific terms and works with a trusted lender or real estate agent who explains that process to them.

A lot of state housing programs have a forgiveness period as well, but that forgiveness period might be 10 years out. Understanding your long-term goals, if you’re planning to be in a house for five-to-seven years, you may opt for the repayable mortgage, which is going to have a lower interest rate over time. If you think you’re only going to be in there for a shorter period of time, you may go for the forgivable mortgage.

What are common misconceptions about down payment assistance?

Jackson: That it has a negative connotation. That only people without money use down payment assistance. People think that the home seller you’re purchasing from is going to look at you differently because you’re using a DPA program. Or you can’t get the type of loan you want. You can use down payment assistance with the USDA, VA loan, FHA, or conventional... it really doesn’t matter.

Other misconceptions are that it’s not for everybody or you have to be a first-time homebuyer. You don’t have to be a first-time homebuyer. You can sell your house and buy another one using down payment assistance.

On the loans we close every month, probably six out of 10 borrowers utilize some form of DPA. It’s huge. It really is a factor between whether people can buy a house or not.

What is down payment assistance and how do you get it?

Down payment assistance is a form of financial aid, typically meant to cover a home buyer’s upfront down payment or closing costs.

Over 2,000 DPA programs exist across the U.S., starting at the federal level and going all the way down to individual cities. These programs vary by amount granted, qualifications, repayment rules, and location.

In general, DPAs cater to low-to-moderate income, first-time home buyers. However, you should always ask a local mortgage or real estate professional about the programs you could potentially qualify for in your area.

The bottom line

Saving enough money for a down payment — especially in trying times — can make buying a home feel like a pipedream.

But with down payment assistance programs at your disposal, you could have your upfront costs covered if you qualify.

If you’re ready to become a homeowner, reach out to a local mortgage professional and get started.