The housing market is hot in 2018. Interest rates are creeping up. Signs are the economy is going well, so it is likely that interest rates will rise in the next year. It is understandable that many people who are renting want to get in on owning a home before rates get too high. But what if you do not have the down payment to get a loan?
Today there are down payment assistance grants available in some cities and counties. There also are interest free 2nd-mortgages and other special loan options that can help you with a down payment.
Down payment assistance is available with many state housing finance agencies and local housing authorities. The money is often available because many Americans think it is too hard to get or they do not qualify. It is assumed that down payment help is only for the very poor, but this is not always true. These bond down payment assistance programs are typically for working people with an average or above average income but lack the funds for a down payment.
Down payment assistance may be offered as a grant that need not be repaid. Buyers may be able to earn up to 140% of the median income in the area and still get a grant. For example, in Orange County CA, you can earn up to $100,000 per year and get a grant of up to 5% of the purchase price.
The program in Orange County is not just for people buying for the first time; it is a grant and does not need to be repaid. You do need a 640-credit score, and it even can be obtained with a refinance. Also, your debt to income ratio cannot be higher than 50%. Different assistance programs will have different criteria, but this one in California is typical.
Another example is the My First Texas Home program that offers home loans with low payments and down payment and closing cost help. This can be up to 5% of the loan and is very helpful for first time buyers. Buyers also can increase the benefits of home ownership with this program by doing this loan with a Texas Mortgage Credit Certificate. This will give you a dollar for dollar reduction on your federal taxes. This can save you hundreds per year on your federal tax bill.
Another option in Texas is the down payment assistance program that is available through the Travis County Housing Finance Corporation. It will help you to get a home with an FHA, VA, or USDA loan in Travis County and Austin. A grant of 4-5% is available that does not need to be paid back to help with the down payment and closing costs.
Another option is a down payment assistance loan that may be a second mortgage, or a silent mortgage that only is paid when the home is sold, or the first mortgage is fully paid. On average, buyers can get from $5000 to $20,000 in help, depending upon their location and finances. But in high cost areas, it is possible to get a loan for up to $100,000 with very favorable repayment terms.
Some of these programs are made to work with FHA loans, but others may allow you to get a conventional loan. You also could have to get a loan from a specific lender in your area to qualify. But not all lenders like to work with these programs because they are not as profitable. If you are looking at a down payment grant or loan, talk to your lender to see if they will work with you.
There also are some lenders that may offer down payment assistance programs to help the first-time home buyer. First time buyers may struggle with the down payment because they do not bring any equity to the deal from the sale of another property.
Lenders say it is a common myth that there are no mortgage programs for people that do not have a 20% down payment. There are many options for people with much less to put down.
For example, many lenders that are approved by FHA to issue loans can give many people a loan with only 3.5% down. It is true that you still need to come up with some money, but you may find a down payment assistance program in your county that can help you with that. Another possibility is to get a gift from a friend or relative, which is permissible under FHA rules. If the person is giving it as a gift and does not expect repayment, you can get a home with essentially 100% financing.
If you need help with your down payment, check around in your city and county first, because there are plenty of programs available.