Assistance for the Down Payment and Closing Costs for the purchase of a new home is almost always the biggest hurdle that keep renters from venturing forth into the sometimes mysterious seemingly elusive land of Homeownershiptopia.
There are several different ways to get assistance with down payment and closing costs – some ways more misunderstood than others.
Let’s look at the most popular question that I hear…..
Are there any Down Payment programs available?
The answer is always YES, of course there are down payment assistance programs available.
The more accurate quest
ion is….”Are there any down payment assistance programs that I qualify for” OR maybe even more accurate a question would be “Are there any down payment programs available that have money to lend”.
You see, most Cities, Counties and States have down payment assistance and closing cost assistance programs available for first time home buyers.
What often prevents home buyers from taking advantage of these programs is either timing or the pure luck of being in the market when the program has funding.
Let’s start with some of the basic qualifying guidelines for almost all down payment and closing costs programs:
1. You must be a first time home buyer
The HUD definition of a First Time Homebuyer is:
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An individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the property. This includes a spouse (if either meets the above test, they are considered first-time homebuyers. |
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A single parent who has only owned with a former spouse while married. |
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An individual who is a displaced homemaker and has only owned with a spouse. |
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An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations. |
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An individual who has only owned a property that was not in compliance with State, local or model building codes and which cannot be brought into compliance for less than the cost of constructing a permanent structure. |
What can vary from program to program is which of these are the “definition” and which are the exceptions.
2. Income or Purchase Price Limitations
Income limits are usually set as a percentage of the Area Median Income or AMI. Fannie Mae’s website has an Area Median Income Search here.
The AMI for each area is different and will be defined in the guidelines for the program that you are applying for.
I have seen qualifying income limits range from 80% or AMI up to 140% of AMI.
3. Targeted Homes in Targeted Areas
This is much less common and is usually targeted to foreclosure homes and/or homes located in Geographically targeted low to moderate income areas
Closing Costs Programs
Closing costs are another challenge that many first time homebuyers encounter. If you’re lucky enough to be in the market when one of the above mentioned City, County or State assistance programs are available you will find many times that these programs will apply to either or both down payment assistance and closing costs.
This is the jackpot, and odds are way better than Vegas that if the program you qualify for has funding, that it will help pay for closing costs.
The State of California CHDAP program is one of those programs that always has funding and is available right now.
Creative Solutions
Check to see if the Down Payment program you qualify for can also be applied to closing costs.
If so, use only the minimum down payment required and apply the rest of the assistance to either pay the Upfront Mortgage Insurance Premium (for FHA loans) or us this money to buy down the interest rate to permanently reduce your mortgage payments and save thousands of dollars of interest over the term of the loan.
Any time you have the ability to opportunity to pay higher closing costs to reduce the interest rate or to keep from “rolling in” costs into the loan amount, you stand to save thousands more than the initial cost of paying the cost up front.
This is a simple fact that most lenders do not share because of the fear of scaring you away with higher closing costs.
If you are educated on all of your options at least you have the ability to be empowered to make an informed decision about how you would like to structure the financing of your new home.
Author: S Schang
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