Best Housing Benefits

May 2, 2017 | Financial

Did you know there are more than 2,400 down payment assistance programs available across the country? In fact, they can be as unique as the homebuyers and communities they serve. Homebuyers should investigate these financing options early in their home buying journey.

How Down Payment Assistance Programs Work

These programs can be administered by the local or state housing authority, nonprofit organization or directly through your lender. They provide a set amount of money to qualified homebuyers that they can use to cover their down payment or closing costs.




The money you receive through the program can be considered a grant, an interest-free loan or a debt you pay off in the future. Normally, you’d have to agree to live in the home and use it as your principal residence for a certain period of time to avoid having to repay the money.

If your down payment assistance is treated as a loan, it would have to be paid in full if you sold the property or finished making all of your mortgage payments.

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Who’s Eligible

Not everyone will qualify for down payment assistance and each state has its own rules for determining eligibility. Generally, it’s based on your income and how much home you’re buying.

Both the home and the homebuyer must be eligible. Homeownership programs are for owner-occupant buyers only, no investment properties. Buyers must make a minimum investment, qualify for a first mortgage and complete homebuyer education. Common eligibility factors include home sales price, homebuyer income and homeownership history.

Many of these programs are limited to first-time buyers so if you’ve owned a home previously, you might not be able to qualify. In some cases, homebuyers also have to attend special training where they learn about the mortgage process and the financial responsibilities that go along with owning a home.

There are often additional benefits, or even entirely separate programs, for educators, protectors, health care workers, veterans and households with disabled members.

How Much Can I Get

Down payment assistance programs are designed to help homebuyers who might otherwise be shut out of the market. Anyone who has already been preapproved for a mortgage can qualify for aid.

During the preapproval process, the lender will go over your income, expenses and your credit history to determine how much of a risk you are.

The amount of money you can get through a down payment assistance program depends on the state that’s administering the funds. Some states base your award on the home’s sales price while others offer a flat amount.




Most Common Types of Assistance Programs

Down Payment Programs
These programs are normally soft second or third mortgages or grants, providing benefits such as 0% interest rates, deferred payments and forgivable loans. The assistance amounts will range from a few to tens of thousands of dollars and can be used towards closing costs, prepaids, principal reductions and/or repairs.

Restrictions are most commonly income (based on household size) and sales price limits which vary by city or county.

Affordable First Mortgages
Many larger housing finance agencies, particularly at the state level, offer first mortgages to accompany their down payment assistance program(s). These first mortgages typically offer a below market interest rate, and may even have reduced closing costs or reduced fees.

They are often funded by state housing finance agencies and may subsidize portions of the interest to offer effective rates below what the normal market can provide, helping to lower buying costs and monthly payments.

Mortgage Credit Certificates (MCC)
This annual federal income tax credit is designed to help first-time homebuyers offset a portion of their mortgage interest on a new mortgage as a way to help qualify for a loan. Because it is a tax credit and not a tax deduction, mortgage lenders will often use the estimated amount of the credit on a monthly basis as additional income to help you qualify for the loan.

The amount of mortgage credit allowed varies depending on the state or local government that issues the certificates, but is capped at a maximum of $2,000 per year by the IRS.




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Did you know there are more than 2,400 down payment assistance programs available across the country? In fact, they can be as unique as the homebuyers and communities they serve. Homebuyers should investigate these financing options early in their home buying journey.



How Down Payment Assistance Programs Work

These programs can be administered by the local or state housing authority, nonprofit organization or directly through your lender. They provide a set amount of money to qualified homebuyers that they can use to cover their down payment or closing costs.

The money you receive through the program can be considered a grant, an interest-free loan or a debt you pay off in the future. Normally, you’d have to agree to live in the home and use it as your principal residence for a certain period of time to avoid having to repay the money.

If your down payment assistance is treated as a loan, it would have to be paid in full if you sold the property or finished making all of your mortgage payments.

Loading

Who’s Eligible

Not everyone will qualify for down payment assistance and each state has its own rules for determining eligibility. Generally, it’s based on your income and how much home you’re buying.

Both the home and the homebuyer must be eligible. Homeownership programs are for owner-occupant buyers only, no investment properties. Buyers must make a minimum investment, qualify for a first mortgage and complete homebuyer education. Common eligibility factors include home sales price, homebuyer income and homeownership history.




Many of these programs are limited to first-time buyers so if you’ve owned a home previously, you might not be able to qualify. In some cases, homebuyers also have to attend special training where they learn about the mortgage process and the financial responsibilities that go along with owning a home.

There are often additional benefits, or even entirely separate programs, for educators, protectors, health care workers, veterans and households with disabled members.

How Much Can I Get

Down payment assistance programs are designed to help homebuyers who might otherwise be shut out of the market. Anyone who has already been preapproved for a mortgage can qualify for aid.

During the preapproval process, the lender will go over your income, expenses and your credit history to determine how much of a risk you are.

The amount of money you can get through a down payment assistance program depends on the state that’s administering the funds. Some states base your award on the home’s sales price while others offer a flat amount.

Most Common Types of Assistance Programs

Down Payment Programs
These programs are normally soft second or third mortgages or grants, providing benefits such as 0% interest rates, deferred payments and forgivable loans. The assistance amounts will range from a few to tens of thousands of dollars and can be used towards closing costs, prepaids, principal reductions and/or repairs.

Restrictions are most commonly income (based on household size) and sales price limits which vary by city or county.

Affordable First Mortgages
Many larger housing finance agencies, particularly at the state level, offer first mortgages to accompany their down payment assistance program(s). These first mortgages typically offer a below market interest rate, and may even have reduced closing costs or reduced fees.

They are often funded by state housing finance agencies and may subsidize portions of the interest to offer effective rates below what the normal market can provide, helping to lower buying costs and monthly payments.

Mortgage Credit Certificates (MCC)
This annual federal income tax credit is designed to help first-time homebuyers offset a portion of their mortgage interest on a new mortgage as a way to help qualify for a loan. Because it is a tax credit and not a tax deduction, mortgage lenders will often use the estimated amount of the credit on a monthly basis as additional income to help you qualify for the loan.

The amount of mortgage credit allowed varies depending on the state or local government that issues the certificates, but is capped at a maximum of $2,000 per year by the IRS.

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