The government can help with your down payment. Here’s how

Help yourself with down payment assistance

Mortgage rates are rising, housing prices keep climbing and available inventory is limited. It all adds up to declining affordability for home buyers everywhere.

And in a market with fierce competition and all-cash buyers, it can be hard to stand out. Fortunately, down payment assistance (DPA) programs can help improve your home purchase offers and financial positioning.

The best part? Different programs exist in every state and oftentimes, the DPA money gets treated like a grant and doesn’t have to be paid back.

Down payment assistance breakdown

Down payment assistance (DPA) aids borrowers in their pursuit of buying a home. DPA comes in the form of low- or no-interest loans and grants that reduce the out-of-pocket amount put toward a down payment or closing costs.

Program qualifications and eligibility vary, typically depend on your location, and come in four forms. Despite the common belief that DPAs are strictly for first-time home buyers, about 38% of programs do not have that requirement, according to Down Payment Resource’s Q1 2022 Homeownership Program Index.

Despite the common belief that DPAs are strictly for first-time home buyers, about 38% of programs do not have that requirement.

The report revealed 2,238 active programs in the U.S., an increase of 2.1% from the previous quarter. Both the number of programs and available funding have trended up for several quarters, said DPR CEO Rob Chrane. As housing costs continue to skyrocket, DPAs can make more of an impact than ever before.

“With affordability on the decline in 79% of U.S. counties and the availability of homebuying assistance on the rise, homebuyers need real estate agents and mortgage lenders to connect them with programs that make homeownership more affordable,” said Chrane.

How DPAs can help

Homeownership is one of the best ways to build and pass on intergenerational wealth.

However, if you’re having trouble saving up in order to transition from renting to owning, you’re not alone. Housing values experienced exponential growth over the past two years, making the buying process more costly and saving up for a down payment even harder.

A 54% share of house hunters said affording a down payment is the biggest obstacle to becoming a homeowner, according to a 2021 LendingTree survey.

“In some places, rents are actually higher than mortgage payments. But people don’t necessarily have that 10% or 20% down payment that the private market demands in order to buy a home,” said Eric Johnson, spokesman at the California Housing Finance Agency. “It just makes sense to help people who might need help getting over the hump to get them into a more stable way of housing.”

Having a larger down payment makes any bid more attractive to home sellers — paramount in such a competitive marketplace. Plus, the more you put into a down payment, the lower your mortgage balance becomes and, in turn, your monthly payment. Further, DPAs can usually be used to pay for your closing costs as well.

Taking advantage of DPA

DPA programs can help level the playing field for home buyers who aren’t flush with cash. Additionally, these programs can afford borrowers more home than originally anticipated and may even qualify them for more favorable financing terms or loan types.

“There are many location-based and lender-backed down payment assistance programs available for eligible homebuyers. Applicant eligibility may vary by location and program issuer,” said Russell Palmer, community & affordable lending program manager at Chase Home Lending.

“Before starting your home search, prospective buyers should work with a home lending advisor to determine their budget, how much home they can afford/put toward a down payment, what loan options are best, if they qualify for any assistance programs, and get pre-approved for a mortgage.”

Advice for buyers

While scraping and saving for a down payment can feel impossible at times, there are programs out there that can help.

In order to benefit from these programs, you have to know about them and how to apply. After researching the home buying process, borrowers should find lending and real estate professionals to better understand how much they can afford, what financing options are best, and where assistance is available, according to Palmer.

“When they’re ready to fully dive-in to the process, buyers should work with a home lending advisor and real estate agent to help them throughout the journey, particularly first-time buyers,” Palmer said.

In addition to putting together a good team, being patient is key in today’s ultra competitive market, according to Johnson.

“We have some loan officers who’ve worked with families for six, 12, and 18 months,” Johnson said. “You may lose out on the first 10 offers you put in but the right house will definitely be there for you eventually.”

If you’re looking to buy a home and ready to figure out if you qualify for down payment assistance, reach out to a local loan officer and get started.