Saving for a home down payment is a massive undertaking. Not only do you have to save up 10-20% of the home’s value, you also have to save for closing costs, and make sure you have enough left over in savings to prove to the bank you’re not going to end up destitute after you sign the paperwork.
While I’m not a big fan of subprime lending (who is anymore?) or taking out a loan you can’t afford (you’ll never build equity!) I am all about programs that can help people reach their goals faster and responsibly. Especially with the state of renting threatening to erode yet another rung in the ladder to the American Dream.
Here are four programs that can help with your home down payment or closing costs. Don’t use these programs to buy something you won’t be able to afford. But definitely use them to help mitigate costs that are prohibiting you from building wealth.
VA Loans
Who qualifies for a VA loan?
VA loans are loans for those who are currently serving or have served in the military. Widows of those who have died in the line of duty or from a disability incurred while in the line of duty can also qualify in some instances.
These loans allow you to get into a home with 0% down and no private mortgage insurance (PMI).
Is a VA loan a good idea?
I’m all about programs that help out veterans and soldiers, but I do want to throw a word of caution out there with this one:
When you are buying with 0% down, your mortgage is going to be larger. You’re also starting with zero equity.
It’s imperative to be 100% sure you can afford your monthly payments. If you can, a VA loan can be a good vehicle to get you into a house. If you can’t, you could end up being house poor very quickly.
Can I use a VA loan to flip a house?
No. The house must meet certain criteria; you likely won’t be purchasing a foreclosure or something that needs a lot of fixing up before it is usable.
You’re also not allowed to use a VA loan to purchase properties that are purely real estate investments — you have to occupy at least some portion of the home.
First-Time Home Buyer Programs
First-time home buyer programs have slowed and decreased in benefit level since the Recession, but they do still exist.
Where can I find a first-time home buyer assistance program?
Most states provide a first-time home buyer program through the state housing financing association.
Some counties and municipalities provide additional programs. These hyper-local programs are typically for homes in areas they’re trying to revitalize, so you must buy within certain neighborhoods to get the assistance.
What are the benefits of a first-time home buyer program?
These programs offer a range of benefits which will vary from state to state, county to county, and city to city. They can include:
Grant money for down payment assistance.
Grant money for closing cost assistance.
Second mortgages with 0% to fund down payment.
Second mortgages with 0% interest to fund closing costs.
Lower-interest mortgages.
FHA Loans
What is an FHA loan?
FHA loans are run through the Federal Housing Administration. With these loans, you only need 3.5% as a down payment, and you’re actually allowed to receive 100% of the funds as a gift from a relative.
What’s the catch with FHA loans?
The downsides to this are much akin to those of the VA Loan: You’re starting with less equity, and the size of your loan will be larger.
On top of that, FHA loans require you pay PMI. To compound things even further, PMI is more expensive on FHA loans than it would be on a traditional mortgage.
Should I use these home buyer assistance programs or not?
Your best bet is to save up enough to pay for everything yourself.
But if you’re in a situation where rent is keeping you from getting that down payment down payment together, you may want to look into these programs and specialized mortgages.
As long as you could afford monthly mortgage payments once the rent was gone, it’s worth at least running your own numbers to see how it would pan out for you in the long-term.
You can save for a house by using high-yield savings and CD deposit accounts, cutting back your spending elsewhere and looking for down payment matching programs. If those strategies aren't enough, you might also consider asking for a raise at work or even moving back home for a while to cut rent payments altogether.
You can save for a house by using high-yield savings and CD deposit accounts, cutting back your spending elsewhere and looking for down payment matching programs. If those strategies aren't enough, you might also consider asking for a raise at work or even moving back home for a while to cut rent payments altogether.
A down payment gift is money given by someone, usually a family member, to a homebuyer to help them afford a mortgage down payment or similar expenses like closing costs. To use gift money, you have to follow the rules imposed by the lender and/or government agency insuring the loan, if applicable.
Provides $10,000 for qualified first-time homebuyers to use as down payment and closing cost assistance when purchasing a home in New Jersey. The DPA is an interest-free, five-year forgivable second loan with no monthly payment.
If you use an interest-bearing loan, you could spend more paying it off than you would have if you didn't use down payment assistance. You could overextend yourself. Down payment assistance may allow you to purchase a more expensive home, but it could add financial stress down the road. Closing could take longer.
According to RBI guidelines, banks are not allowed to offer home loans in India with no down payment. You can borrow only a certain percentage of the purchase price of a property. Thus, you can cover up to 75% to 80% of your property purchase through a home loan.
Some lenders require a 5 percent minimum. Keep in mind, too, that to avoid PMI, you'll need to put down at least 20 percent. If you can't afford that high of a down payment, though, know you won't pay PMI forever. Once you reach 20 percent equity in your home, you can request that your lender remove PMI from your bill.
A fourth option is a loan. Mom and Dad can loan Jill the down payment. Jill and Bill will sign a fully amortized Promissory Note secured by Deed of Trust against the property that Jill is buying. The IRS is going to require an interest rate of at least 2.5% on inter-family loans (this rate is subject to change).
A gift letter is a statement that ensures your lender the money that came into your account is a gift and not a loan. The person who gave you the money must write and sign the gift letter as well as provide their personal information.
Gifts are generally permitted for the full amount of the down payment on a primary residence. Specifics may vary depending on whether the borrower is applying for a conventional loan, a Federal Housing Administration (FHA) loan or a Veterans Affairs (VA) loan.
The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).
Conforming loan down payments can vary from 3% to 20% or more, so for a $500,000 home, you'd need between $15,000 and $100,000. Conforming loans, once again, follow Fannie Mae and Freddie Mac guidelines and usually offer competitive terms.
Property must be occupied as the Borrower's primary residence within 60 days of closing. Borrower(s) must have a FICO score of 620 or greater and meet debt-to-income requirements.
You'll likely pay more interest over the life of the loan because you're borrowing more money. You may not be able to afford as much home as you could if you put money down. You'll have less equity in your home because you've put down less money.
Home sellers often prefer to work with buyers who make at least a 20% down payment. A bigger down payment is a strong signal that your finances are in order, so you may have an easier time getting a mortgage. This can give you an edge over other buyers, especially when the home is in a hot market.
The larger the down payment, the lower your interest rate will be. Lower Monthly Mortgage Payment – If you have a larger down payment, then your loan amount will be smaller.
The National Association of Realtors (NAR) states that the average down payment on a house for first-time home buyers is 6% versus 17% for repeat buyers in 2022.
To purchase a $200,000 house, you need a down payment of at least $40,000 (20% of the home price) to avoid PMI on a conventional mortgage. If you're a first-time home buyer, you could save a smaller down payment of $10,000–20,000 (5–10%). But remember, that will drive up your monthly payment with PMI fees.
Conventional mortgages, like the traditional 30-year fixed rate mortgage, usually require at least a 5% down payment. If you're buying a home for $200,000, in this case, you'll need $10,000 to secure a home loan.
Introduction: My name is Rev. Leonie Wyman, I am a colorful, tasty, splendid, fair, witty, gorgeous, splendid person who loves writing and wants to share my knowledge and understanding with you.
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