3 Ways to Cover Your Down Payment
WHAT YOU'LL LEARN
Why the down payment isn’t as scary as it sounds.
How assistance programs work – and cover closing costs.
Tips for using gift funds.
WHAT YOU'LL LEARN
Why the down payment isn’t as scary as it sounds.
How assistance programs work – and cover closing costs.
Tips for using gift funds.
Ask any potential homebuyer what their biggest fear is about the mortgage process, and they will likely answer “the down payment.” While most people borrow money to purchase a home over many years, the down payment is a percentage of the purchase price you provide upfront. And that’s on top of your closing costs, the fees and taxes you pay at settlement to make the home truly “yours.”
But you have resources to help get you over these hurdles! And you don’t need that mythical 20% down payment either. Eligible buyers can enjoy as little as 3-5% as a down payment, and U.S. Department of Agriculture (USDA) and Department of Veterans Affairs (VA) buyers don’t have a down payment at all!
Let’s take a closer look at how to pay this scary sum and maybe not pay it out-of-pocket at all!
Down Payment Assistance Programs
Down payment assistance programs (also known as “DPA,” “secondary financing,” or “second mortgage”) are low- or no-interest loans, grants, and tax credits that can help cover some or all of your down payment. Even better, these assistance funds can often be applied to your closing costs, too! (Curious what your closing costs might be? A closing cost worksheet is a great tool!)
Federal, state, county or local government agencies, nonprofits, and employers offer DPA programs. Availability and qualification requirements vary by state.
You may see a DPA requirement of “first-time homebuyer,” but that simply means those who have not owned a home in the last three years.
Buyer Boost for FHA and USDA Buyers
If you are looking at Federal Housing Administration (FHA) or USDA loans, Atlantic Bay offers several DPA programs to help.
Our Chenoa and Buyer Boost Down Payment Assistance programs are great for FHA buyers who need help with the required 3.5% down payment. These programs provide a 10-year repayable second mortgage, as well as settlement costs and prepaids, up to the allowed 6% of the sales price. This means, in the right circumstances, a qualified borrower could need little, if any, cash for closing.
Although USDA loans come with no down payment, they still have closing costs. Buyer Boost provides that same 10-year repayable second lien to help pay some or all settlement costs, also up to USDA’s allowed 6%.
Another benefit to Buyer Boost is that it accepts blended credit scores, which means instead of taking the lowest score between multiple borrowers, we can average them for a higher score - and better your chance at qualifying! Ask your Mortgage Banker about FHA DPA programs best suited to your needs.
Gift Funds
Gift funds, or gift money, are contributions from close friends and family members to help finance your new home.
Acceptable donors and documentation vary according to the loan program, but several rules are the same regardless of the program:
The donor can’t have a financial interest in the home purchase (the real estate agent, etc.).
You and the donor will need to provide documentation like a signed gift letter and bank statements.
Any cash for gift funds must be “seasoned” in your account for at least 60 days.
The most helpful tip for achieving your down payment is to ask us about all your options. You might be surprised how much help is available. Just give us a call!