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Can you get down payment assistance during COVID-19?

Casey Morris
The Mortgage Reports contributor

Buying your first house during COVID-19 is still possible

Mortgage rates may have hit an all-time low, but that doesn’t mean the purchase process has gotten any easier for first time home buyers.

The pandemic has forced interest rates down in recent months, but it also drove millions of layoffs and reduced hours. This makes it more difficult for buyers to save the cash they need for a new home.

Fortunately, down payment assistance programs are largely still available during COVID-19.

Indeed, down payment assistance could prove crucial to helping low- to mid-income workers become homeowners in the wake of the crisis.

Verify your home buying eligibility (Oct 28th, 2020)

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Are down payment assistance programs still available?

Despite the massive financial toll COVID-19 has taken on the government and private industries, down payment assistance remains widely available to home buyers.

The website Down Payment Resource reported that as of mid-May, only 1.5% of over 2,000 assistance programs nationwide had been suspended due to the coronavirus crisis.

Additionally, all Housing Finance Agencies (HFAs) remain open and will accept digital applications for housing assistance.

But it’s worth noting that down payment assistance programs may have limited funds. So the sooner you can apply, the better.

The impact of COVID-19 on first time home buyers

Although millions of people are receiving unemployment while they search for new jobs or wait to be called back to work, those benefits don’t count as qualifying income for a mortgage.

Unemployment can be used to apply for a mortgage in specific circumstances, such as by construction workers with a history of seasonal unemployment. But borrowers who are temporarily out of work due to the crisis are generally not able to count it on their mortgage applications.

Even as the economy reopens, low- and mid-income earners may struggle to save the up-front cash needed to buy a house.

So unless they’re applying with a partner who still earns income, COVID-19 could prevent first time home buyers from applying for a mortgage until they return to work.

That shortens their window for taking advantage of current low rates.

Layoffs also may have forced people to tap into savings that would otherwise have been used to buy a house, making an already difficult situation still tougher.

Even as the economy reopens, low- and mid-income earners may struggle to save the up-front cash needed to buy a house.

How down payment assistance can help

Saving enough for a down payment and closing costs was already a top concern for first time home buyers before coronavirus.

A Bankrate survey found that 37% of Gen Xers and 27% of Millennials worried that they would never be able to save enough for a down payment.

Not only do you need a down payment — usually of at least 3% — but you’ll also need to pay closing costs and a range of other expenses, including appraisals, inspections, and possibly origination fees.

Down payment assistance eases the financial burden of home buying by covering a precentage or flat rate toward your down payment and/or closing costs.

All of this can add up to 5% of the total loan, which means that people who can’t save up a substantial amount of cash won’t be able to get a mortgage.

Down payment assistance eases that burden by covering a percentage or flat rate toward the down payment. Some programs provide cash toward closing costs as well, further reducing the barrier to homeownership.

For a first time buyer who cannot cover the upfront mortgage costs on their own, especially after COVID-19, down payment help could be the difference between renting and owning their own home.

Verify your home buying eligibility (Oct 28th, 2020)

How to find and apply for down payment assistance

Down payment assistance programs often include grants or forgivable loans to help qualified buyers purchase a home.

Each program carries its own requirements, which may include income and location limits, as well as mandated first time home buyer education courses.

All told, there are more than 2,000 down payment programs throughout the country, including state-level assistance and county and city home buyer help.

Check out this state-by-state program guide to get started, and contact your local housing agency to learn about any other financial help they can provide.

Even if you qualify for a program, you need to make sure your lender will accept down payment assistance funds toward your purchase. Not all lenders do.

Note that assistance programs vary in structure and requirements.

For instance, some will provide funds in the form of a forgivable loan, as long as you stay in the home for a set number of years. Others are structured as grant programs or tax credits.

Oftentimes there are income limitations based on where you plan to buy. Down payment and closing cost programs tend to be geared toward helping low- to mid-income people purchase homes, and the income limits vary according to the economics of different towns and cities.

You can usually find the income and location qualifications on the program’s website. There may also be minimum credit score requirements.

Even if you qualify for a program, you need to make sure your lender is on board. Not all banks and financial institutions work with assistance programs, so ask whether it’s an option before you submit your application.

That will be even more important if you’re financially strapped because of COVID-19, and down payment assistance will make or break your ability to get a mortgage.

Why first time home buyer assistance is more important now than ever

When coronavirus hit, low-income and marginalized workers were hit hardest. This has widened existing gaps between low- and high-income earners, particularly when it comes to homeownership.

The Urban Institute reported that Black, Latino, and low-income workers were more likely to miss rent payments in May and to be financially unstable overall.

Black and Latino workers were also significantly more likely to be affected by layoffs. The unemployment rates among those groups were 16.7% and 18.9%, respectively, as of June 2. 

Given that there are already substantial gaps in homeownership between white and non-white Americans, down payment assistance will be more crucial than ever in moving toward more equitable ownership rates.

Homeownership can be an enormous help toward building a family’s wealth, according to the Urban Institute. And a 2019 survey revealed that down payment help is essential for millions of families to get there.

By reducing the barrier to obtaining a mortgage, first time homebuyer loans and grant programs could help low- and mid-income earners toward greater financial stability.

Your next steps

If you’re financially able, buying a home during or after the COVID-19 pandemic could be a unique opportunity.

Mortgage rates are ridiculously low. When paired with a down payment assistance program, that could put homeownership within reach for many people who couldn’t afford a house before.

When you’re ready to get started, research assistance programs in your area. And check in with lenders to see what you could qualify for today or in the near future.

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