Do you dream of someday owning a home of your own? Are you concerned that you’ll never be able to swing it financially? Lack of money for a down payment, closing costs, inspections, and other expenses related to purchasing a home can definitely present an obstacle to homeownership, especially if you don’t make much money.
But before you write off owning a home of your own, you should know that there are plenty of down payment and loan assistance programs to help people like you get into homes of their own. State, local, and federal government agencies provide funds to help first-time homebuyers purchase homes because it serves the public good, as homeownership makes neighborhoods more stable, helps families build generational wealth, and boosts community involvement.
The trick is to take advantage of grants, deferred loans, low-payment loans, forgivable loans, and savings match programs to come up with the money you need for a down payment, closing costs, interest discount points, inspections, and other expenses.
Grants are the best form of down payment assistance because you don’t have to pay them back. However, you should read the fine print to make sure your grant won’t place a second lien or silent mortgage on your home. State and local government programs offer first-time homebuyers grants that can be put towards a down payment, closing costs, and other home-buying expenses, such as buying discount points to lower your interest rate. State and local grant programs typically have credit score requirements and income caps, but they’re a great option for low-income home buyers, especially those looking to get a mortgage in an expensive market like Charlottesville, VA.
Forgivable, Deferred, and Low-Payment Loans
A forgivable loan is one that you can take out to pay for a down payment, closing costs, or other home-buying expenses; they are typically forgiven after you’ve made on-time payments on your primary loan for a certain number of years. Usually, these loans are forgivable after three to five years, but sometimes it may take as long as 15 to 20 years to get them forgiven – and sometimes lenders can extend the forgiveness period beyond the initial three-to-five-year mark. However, they usually don’t carry any interest and you only have to pay them back if you default, sell, or refinance before the forgiveness period is up.
On a federal level, the National Homebuyers Fund sponsors homebuyers with forgivable loans of up to 5% of a home’s purchase price to put towards a down payment. You don’t have to be a first-time homebuyer to qualify for a loan from the National Homebuyers Fund. These forgivable loans can be used with a Federal Housing Administration (FHA), Veterans Administration (VA), US Department of Agriculture (USDA), or conventional loan.
National Homebuyers Fund loans are forgivable five years after closing. You can’t apply for a National Homebuyers Fund grant yourself – your lender has to apply for it on your behalf.
You can also use a deferred mortgage loan to cover your down payment. These, too, tend to carry zero interest, but they aren’t forgiven. You don’t have to pay them back until you sell or refinance your home, move to a different primary residence, or pay off your primary mortgage. However, you will have to pay them back eventually.
Low-interest down payment assistance loans are also an option. These consist of second mortgages that you take out at the same time as your primary mortgage. You will have to make monthly payments on a low-interest loan, so you’ll essentially be making two mortgage payments every month. However, you can get lower interest or perhaps no interest on a low-interest loan option.
Savings Match Programs
Government and community agencies or even your lender may offer a down payment savings match program. In a savings match program, you put the money you have saved for a down payment into a special account, and the agency or bank matches it, doubling your down payment.
Down Payment Assistance
Most down payment assistance programs are only available to first-time homebuyers. If you own a rental or investment property, you can’t qualify as a first-time homebuyer. However, most down payment assistance programs will consider you a first-time homebuyer if it’s been at least three years since you’ve owned a home. If your spouse has owned a home within the past three years, but you haven’t, you might still be able to qualify. And if you’ve only owned a home with a spouse in the past and now want to buy a place following a divorce, you might still be able to qualify.
Just because you can’t afford a big down payment on your own doesn’t mean you can’t buy a house. There are many down payment assistance programs available to help low-income people with decent credit get into homes of their own. Investigate the options in your state, and find out how good it feels to own a home of your very own.
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