Looking for down payment assistance (DPA?) The good news is there are a lot of great programs out there but you’ll need to do a bit of homework to get in. Let’s start with a very high-level view of these types of programs.
WHAT IS DOWN PAYMENT ASSISTANCE?
One of the biggest barriers keeping millions of people from buying a home is the massive down payment. Most people don’t want to pay private mortgage insurance, so they can only resort to saving up the 20% down payment required for a conventional loan.
In the current economic climate, it could take years to save that much money. If you’re saving $8,000 a year and you want to buy a $200,000 home, it will take about five years to save up the $40K you need.
This is where down payment assistance programs come in. Just like they sound, they’re designed to help first-time homebuyers get the last bit of money they need for the down payment.
WHAT KINDS OF DOWN PAYMENT ASSISTANCE ARE AVAILABLE?
Most DPA programs fall into one of two buckets.
The first bucket is essentially a small loan. The program may give you the chance to borrow a percentage of the home’s purchase price, such as 3.5%. On a $200,000 home, that means you can borrow up to $7,000. That means you only have to put in $32,500 now of your own money. Yes, that can still take a while to save up, but it could save you another year of waiting!
The second bucket is a grant. Yes – there are programs that will give you money to help you get into the home you want.
Most programs fall more in the loan category, but the best thing you can do is look around and see what you can find.
HOW DO YOU FIND DPA PROGRAMS?
Most down payment assistance programs are offered by local county, city, or state governments. For example, there are multiple California DPA programs available, depending on what county or city you live in.
Your best bet is to dig around and see what your local governments have to offer. You may be surprised by how many options you have!
HOW DO YOU QUALIFY FOR DOWN PAYMENT ASSISTANCE?
Every DPA program is different but there are a few things that tend to be similar across most programs.
First, you should know that most programs are limited to first-time homebuyers only. The programs are designed to help people get into their first homes and build equity. That way they can take their real estate capital gains when they sell the home and use that as part of the down payment for their next home. This helps people build wealth over time and get into better financial positions in general.
Second, there is usually some kind of income requirement. For example, the San Diego CalHome Program requires your household gross income to be under 80% of the San Diego area’s median income, determined by HUD. In other words, these programs are generally meant to help lower-income families.
Third, the home needs to be for you to occupy, not rent out. These programs are meant to help you buy a home for yourself, not a rental property.
Besides those three things, each program is different. Some may require you to come to the closing table with a certain amount of cash from your own pocket. Others may have a limit as to how many people can live in the home.