Whenever someone is wanting to buy their first home, it is often shocking to them how much money up front they will need. Often, this will include a 20% down payment along with another 7% closing cost and may also include professional fees, as well as the cost of title checks, home inspections, and other expenses. This can mean they are not able to buy that first home. Many people are unaware that they might qualify for down payment assistance which is a program to help qualified buyers with the extra money they need to get into that first home.
How Does It Work?
There are many programs and they vary from state to state and from program to program. Some are given as grants which mean’s that as long as the buyer lives in the home for a certain period of time then they will not have to pay the loan back. More commonly it is a loan that has to be paid if the home is sold or once the main mortgage is finished being paid.
Even the loans that need to be paid back are usually interest-free. Of course, there are qualifications and those who do not meet them will not qualify. For instance, some states require that the person or persons trying to qualify must have an income that is only 80% of the states medium income earners. Most of the programs are designed for first-time buyers which means if someone has previously purchased a home they would not qualify.
Because these programs are designed to help moderately low-income people and families to qualify for a home mortgage to purchase their first home, some of them require the borrower to attend training classes to teach them the responsibilities of home ownership and making payments on their mortgage and so on.
How Much Loan Assistance Is Available?
This again depends on the state it is being offered in. The Common Wealth of Virginia offers these types of loans in amounts up to 20% of the purchase price. But a state like New York has a maximum limit of $15,000.
Is Good Credit A Requirement?
These loans are designed to help those who otherwise qualify for a mortgage but might be prevented from getting it because they do not have enough of a downpayment or cannot afford the other cost associated with closing the purchase. If someone can’t qualify for a mortgage because of bad credit then down payment assistance would not help.
Anyone who can’t currently qualify for a mortgage would first need to work on restoring their credit to a level that would allow them to get a mortgage from a bank or other lending institution. Once they have improved their credit, they should apply for preapproval.
Once a bank or lending institution has prequalified them for a mortgage loan then they can begin looking for the right home. Any realtor will be eager to work with them in finding a home because they are prequalified.
Once the home has been chosen and the buyers know exactly how much of a down payment they need, then they can apply for the grant or interest-free down payment loan. Provided they meet the state requirements, they are highly likely to get approval.