myFICO: What to Know About Mortgage Down Payment Assistance Programs
23 July 2024 - 5:34PM
Business Wire
Trying to save money for a down payment can be a major obstacle
to home ownership for many consumers. Nearly 60% of Millennials say
that coming up with a down payment is one of the biggest obstacles
standing in the way of homeownership according to a recent survey
by Apartment List.
Yet if you’re worried about not being able to come up with the
money you need to afford a down payment on a home, there’s good
news. Thanks to mortgage down payment assistance programs, you
might not have to rely on your savings alone to accomplish your
goal of becoming a homeowner.
The guide below will help you understand what mortgage down
payment assistance is, how these types of programs work, and where
to look for this type of financial assistance. Here’s what you need
to know if you’re interested in using mortgage down payment
assistance when you purchase a home, from myFICO.
For more credit education, visit myFICO’s blog at
https://www.myfico.com/credit-education/blog
What Is Mortgage Down Payment Assistance?
Down payment assistance (DPA) programs are grants, low-interest
loans, forgivable loans, and deferred payment loans that can help
you pay for the cost of a down payment. In some cases, DPA programs
may help with closing costs too. These types of programs can help
reduce the financial burden borrowers face when trying to save up
large amounts of cash to buy a home.
The funds for down payment assistance programs often come from
government agencies. However, there are private lenders and other
organizations that issue DPA funds to borrowers as well.
How Mortgage Down Payment Assistance Works
Each down payment assistance program is different. So, if you’re
interested in finding financial help during the home-buying
process, it’s wise to research the details of each program
including how much assistance they offer, whether the funds are
forgivable grants or loans, and if you’re able to qualify.
For some DPA programs, you may need to fill out a mortgage
application and go through your lender. Yet with others, you may be
able to apply for financial assistance separately as long as your
lender will accept the DPA funds should you qualify.
Eligibility Requirements
In many cases, down payment assistance programs are restricted
to first-time home buyers. As long as you haven’t owned a home in
the last three years, you may qualify for certain programs. Other
DPA program eligibility requirements may include the following:
- Minimum FICO® Score: You may need to have at least a
minimum FICO Score or higher to participate in some DPA
programs.
- Low-Income Borrowers: If you earn more than a certain
amount per year, you may not be eligible for certain DPA
programs.
- Primary Residence: Down payment assistance programs are
typically only available to help buyers of primary residences, not
investment or rental properties.
- Purchase Price Limitations: Some DPA programs may place
restrictions on the maximum purchase price of the home you wish to
purchase.
- Homebuyer Education: You may need to complete a
homebuyer education course prior to closing.
Types of Mortgage Down Payment Assistance Programs
There are two primary types of down payment assistance programs
available to help potential home buyers.
1. Grants: Grants are DPA funds you don’t have to repay.
You may be able to use grants to cover your down payment and
sometimes closing costs as well.
2. Loans: A down payment assistance loan could be another
way to find help coming up with fund for your down payment and
possibly closing costs on a mortgage as well. These types of loans
typically function as a second mortgage. But depending on the DPA
program, they may come in several different varieties.
- Forgivable Loans: These types of loans act like grants
you don’t have to repay. But you’ll generally need to remain in the
home for a certain number of years after the purchase before the
lender forgives the debt.
- Deferred-Payment Loans: In general, borrowers can put
off making payments on these types of loans until they move,
refinance the first mortgage, or until the end of the loan’s
term.
- Low-Interest Loans: With a low-interest loan, you’ll owe
a second payment alongside your first mortgage each month for your
down payment assistance. Yet since the loan features a low interest
rate (and in some cases no interest), the goal is for the payment
to be more affordable.
Where to Find Down Payment Assistance Grants and
Loans
If you’re interested in using a grant or DPA, here are some
resources to consider.
- Freddie Mac Down Payment Assistance Database
- Your State Housing Finance Agency
- National Home Buyers Fund
- Bank of America Grants
- PNC Closing Cost Assistance Grant
- Wells Fargo Grants
You can also consider Search the U.S. Department of Housing and
Urban Development (HUD) website for homebuying programs in your
state. Furthermore, your mortgage lender may have additional
programs and resources to recommend.
Bottom Line
Trying to save up money for a down payment and closing costs can
feel overwhelming—especially if you’re trying to buy a home for the
first time. Yet there are resources available that can make the
path to homeownership easier to navigate.
About myFICO
Get your FICO® Score from the people that make the FICO Scores,
for free. Plus, free Equifax credit monitoring and a free Equifax
credit report every month. No credit card required. For more
information, visit
https://www.myfico.com/products/fico-free-plan-a
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Elizabeth Warren ElizabethWarren@fico.com