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What down payment assistance is available?

“Low down payment mortgages are a great solution for helping borrowers achieve homeownership,” Fannie Mae officials wrote. “But for some borrowers, finding even a 3% down payment can be a challenge. Fortunately, in many cases, Fannie Mae allows funds for part or all of a down payment and closing costs to come from a variety of sources, helping more borrowers achieve the dream of homeownership.”

For its part, Fannie Mae allows three primary sources of closing cost and down payment assistance:

  • Gifts. Fannie Mae allows gifts to come from a variety of sources as a way to help borrowers defray upfront costs. This can come from any individual who’s related to the borrower by blood, marriage, domestic partnership, adoption, or legal guardianship. This also includes relatives (of the borrower or domestic partner), former relatives, godparents, spouses, individuals engaged to marry the borrower, children, or other dependents. 
  • Grants are another way to help borrowers cover down payment costs, according to the government-sponsored enterprise. These can come from employers, municipalities, states, counties, or state or local HFAs, nonprofit organizations (excluding credit unions), federal agencies, regional Federal Home Loan Banks, Native American tribes and their sovereign instrumentalities, or lenders (under specific conditions). 
  • Community Seconds mortgages can come from many of the same sources as grants, but a second lien or other document is placed on the property to enforce compliance with it, according to Fannie Mae. Although the GSE does not purchase Community Seconds, it does purchase first mortgages associated with Community Seconds. Among the benefits of community seconds are loans may have more than one Community Seconds mortgage (such as a third lien) up to the maximum 105% CLTV.

Moreover, Community Seconds mortgages can be used with both standard and affordable products. One of those is HomeReady. GSE officials note that sweat equity – labor completed by a borrower prior to closing on a property – is one way to apply the value of volunteer work toward a borrower’s down payment for a HomeReady loan.

For borrowers putting in sweat equity to their homes for HomeReady loans, Fannie Mae no longer requires a 3% personal funds contribution nor caps the sweat equity contribution towards a down payment, officials noted.

All told, more than 2,000 programs are available in the US to help with down payment and closing costs, according to the Down Payment Resource website.

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