Home buyer grants are helping first-time buyers during COVID

Erik J. Martin
The Mortgage Reports contributor

A helping hand for home buyers

If you’ve had a financial setback during COVID, you’re certainly not alone. But this doesn’t have to be the end of your home buying dreams.

Many buyers who need a helping hand can find it in the form of home buyer grants, loans, and other down payment assistance (DPA) programs.

These sources of free or forgivable money can help cover closing costs and/or the down payment needed to purchase a house.

These programs are still providing funding all across the country, despite the pandemic. And some are even expanding to help larger numbers of buyers.

For those who qualify, DPA can bridge the gap from renter to homeowner, even during these tough times.

Verify your home buying eligibility (Jul 27th, 2021)

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Buying a house during COVID? Down payment grants can help

Buying a home isn’t cheap. In addition to making a down payment of 3% or more, you’ll need to pay closing costs, which are often 2% to 5% of the purchase price. Together, these upfront costs can set you back tens of thousands of dollars.

The down payment and closing costs might make homeownership seem unaffordable, especially for buyers who saw their income or savings reduced during the coronavirus pandemic.

Fortunately, many home buyers can qualify for grants and other forms of down payment assistance (DPA).

What is down payment assistance?

Every state has special programs targeted toward first-time buyers which can help with the down payment and/or closing costs on your new home.

Most DPA and closing cost assistance comes in the form of a grant or loan. These are provided by local governments, state housing commissions, nonprofits, or private mortgage lenders.

While many prospective buyers can afford monthly payments on a mortgage, “the upfront costs may make homeownership seem out of reach.” –A.J. Barkley, Neighborhood lending executive, Bank of America

These grants and loans can award hundreds to tens of thousands of dollars to approved applicants.

Down payment assistance often doesn’t have to be repaid unless you refinance, move, or sell the property within five years or so of receiving the funds. If you do, you’ll repay the funds on a prorated schedule.

These programs can be a massive help for buyers who are creditworthy and ready for homeownership, but lack the upfront funds needed to get into a home.

Verify your home buying eligibility (Jul 27th, 2021)

First-time home buyer programs are still going strong

You can still get down payment and closing cost assistance during the pandemic. Most of these programs have maintained funding throughout COVID-19 and are still available from housing finance agencies and other sources across all 50 states.

Here are just a few of the places you can look to find DPA programs you might qualify for.

In fact, some programs are even expanding to assist more home buyers during the coronavirus crisis.

Some grant programs are expanding during the pandemic

A number of agencies and mortgage lenders have recognized the growing need for financial aid during the pandemic, and have actually increased the amount of down payment assistance available to home buyers.

Here are just a couple of examples.

Bank of America Community Homeownership grant

Through its Community Homeownership Commitment initiative, Bank of America offers a:

  • Down Payment Grant program — In more than 260 cities and counties across the nation, qualified buyers can receive a grant of up to 3% of the home’s purchase price or $10,000, whichever is less. These funds, which don’t have to be repaid, can be used toward the down payment
  • America’s Home Grant® program — This provides a lender credit of up to $7,500 that can be applied toward non-recurring closing costs, such as recording fees and title insurance. Or, the funds can be used to permanently buy down the mortgage loan’s interest rate. This money does not need to be repaid, and it can be combined with the BofA Down Payment Grant

“Bank of America recently announced that it will triple its affordable homeownership initiative from $5 billion to $15 billion through 2025 to help 60,000 people purchase homes,” says A.J. Barkley, neighborhood lending executive with Bank of America.

She explains that, while many prospective buyers can afford monthly mortgage payments, “the upfront costs may make homeownership seem out of reach. That’s why we launched an affordable homeownership initiative for low- to moderate-income buyers across the nation.

“We’ve also committed $1 billion to help drive economic opportunity locally, particularly for people and communities of color,” says Barkley.

Eligible buyers must:

  1. Purchase in one of the 260 approved areas
  2. Meet certain income limits
  3. Have less than a 20% down payment
  4. Plan to live in the home as their primary residence

While not everyone will meet the criteria, those who do stand to get as much as a $17,500 boost toward their home buying goals when combining the two programs.

Chase Home Lending home buyer grant

Additionally, Chase Home Lending has expanded its $30 billion Path Forward commitment, which aims to help buyers, especially in ‘minority communities.’

Chase is now offering a $5,000 homebuyer grant which can be used toward the down payment and closing costs when you purchase a home within one of 6,700 qualified neighborhoods across the country.

Also, eligible borrowers get an additional $500 if they complete a certified homebuyer education course and choose a Chase DreaMaker mortgage loan.

The DreaMaker mortgage is a low-down-payment home loan that requires just 3% down and has reduced mortgage insurance premiums. It’s intended to make home buying more affordable for low-income and moderate-income borrowers.

Check your low-down-payment mortgage eligibility (Jul 27th, 2021)

Qualifying for down payment assistance

To be eligible for down payment and/or closing cost assistance, you have to qualify. Every assistance program has its own rules and criteria.

“The most common prerequisite for down payment assistance programs or grants is the first-time status of buyers. The overwhelming majority of today’s assistance programs are typically reserved for those who’ve never purchased a home before,” says Than Merrill, founder and CEO of FortuneBuilders.

Also, many assistance programs are regional, which means you have to live in that area and meet program requirements.

“Here in Georgia, to qualify for most down payment assistance you must not have owned a home in the last three years,” says Donovan Reynolds, a Redfin Realtor.

“Plus, you have to meet mortgage lending requirements, there is normally an income cap, and you have to reside in a specific geographic area.”

Reynolds cites the Georgia Dream program as a popular DPA resource in his state.

Additionally, you’ll likely need a minimum credit score to qualify — often 640 or better. Household income limits may apply as well, which are typically based on your family’s size and location of your property.

Any housing professional should be able to help you find local DPA programs for which you might qualify. You can ask your real estate agent, Realtor, loan officer, or mortgage broker for guidance.

You’ll also need to find participating lenders for the program you want. Not all lenders are willing to work with DPA funds, though many of the best lenders for first-time buyers are happy to do so.

Is buying a house during COVID a good idea?

For many, now is a great time to purchase a home.

“Continued historically low interest rates are more than capable of offsetting a large portion of today’s home prices,” Merrill says.

However, mortgage rates seem to be on an upward trend, which means home buying might not be quite so affordable in the near future.

In addition, the home buying process has become more flexible to accommodate pandemic-era shoppers.

Many buyers can safely research homes for sale and complete the transaction without undue coronavirus risk — which may involve relying on virtual tours, videos, and photos, as well as a remote or contactless closing.

“Continued historically low interest rates are more than capable of offsetting a large portion of today’s home prices” –Than Merrill, founder/CEO, FortuneBuilders

However, prepare to contend with a lot of like-minded home shoppers. That can result in a bidding war that will drive up the price of a home you’re interested in.

With continued low inventory, expect demand for affordable housing to outstrip supply for the foreseeable future.

“If you have the resources in place, including down payment or closing cost assistance, buying a home now can be a great long-term investment,” suggests Tomas Satas, founder and CEO of Windy City HomeBuyer.

“Just be prepared for the challenges involved with viewing a house virtually versus in-person. To protect your interests, insist on having a professional home inspection conducted.”

Do you qualify to buy a home right now?

Even if you secure down payment or closing cost assistance funds, you’ll still need to qualify for a mortgage loan.

Some of the most popular loan types for first-time buyers are:

  • Conventional 97 loan — Conventional loan backed by Fannie Mae or Freddie MAc requiring only 3% down and a 620 FICO score
  • FHA loan — Loan program backed by the Federal Housing Administration requiring 3.5% down and a 580 FICO score
  • VA loan — Zero-down mortgage backed by the Department of Veterans Affairs for veterans, active-duty military members, and surviving spouses
  • USDA loan — Zero-down mortgage for low- and moderate-income home buyers in rural areas and some suburban areas

Note, qualifying can be more difficult if you work in a declining industry during COVID, are part-time or self-employed, or lack a record of financial stability. See our guide to home buying during COVID for more information.

“You have to make sure you have enough funds to sustain the entire buying process and can afford your monthly mortgage payments,” Satas cautions.

To improve your odds of getting a mortgage loan, follow these recommended steps:

  1. Check your credit report for errors and work to increase your score if possible
  2. Apply with multiple lenders, which can also yield the lowest rate and fees
  3. Get pre-approved for a mortgage loan prior to making an offer on a home
  4. Avoid making late rent payments, which can affect your ability to qualify for a loan
  5. Avoid financing costly items before closing, which can decrease your home buying budget

“Anyone with a strong desire to purchase who can demonstrate an ability to handle financial commitments and has enough money saved for everyday living expenses and emergencies is a good candidate to buy a home,” says Barkley.

You can check your mortgage eligibility by getting pre-approval from a lender, which is typically free and can easily be done online.

Verify your new rate (Jul 27th, 2021)