Down payment assistance grants, what are they really? Let’s get this out on the table because there seems to be some confusion and many misleading advertisements. Let me start with the top 5 misconceptions of down payment assistance grants.
1.They are NOT funds from the government- The down payment assistance comes in the form of a grant, meaning when you go to sell your home or refinance you are not required to pay these funds back. BUT these funds are not from a magic bank account that the government provided for those who need assistance. This accompanies a loan program, and are made available to those who qualify (income, credit & purchase price requirements), in order to help make homeownership more attainable.
2.They are NOT separate funds from your loan- The down payment assistance grants are not a separate check you receive for your down payment. The down payment assistance grant IS part of the loan program. They are 30 yr fixed mortgages, with an FHA, VA & Conventional mortgage. When qualifying you need to work with a lender who is approved for these loan programs and can offer them.Meaning, your lender has to offer down payment assistance grants, or you can’t get one.
3. They are NOT only available to first time home buyers- These programs are available to all who can qualify. Restrictions apply.
4.Interest rates are the same as someone who makes their down payment- The mortgages do have a higher interest rate because these loans are perceived as riskier to the bank.The bank is put at increased risk with someone who is unable to put money down and would require a higher rate to cover any risk of default. You could say it is the cost of doing business with a specialty loan program.
5.That they allow you to purchase with no money down- These programs may assist with your down payment but they do require that you put a minimum of $1000 of your own funds or 1% of the purchase price, whichever is greater. There are also closing costs when purchasing a home, which the $1000 requirement will help meet. But you need to understand that there are closing costs and pre-paid items for insurance and escrow setup costs. These items can average around 2-3% of the purchase price, so you need to be prepared to have some money! Money to cover the closing costs, of your earnest money (which gets put towards your closing costs), your home inspection (not required but highly recommended) and your appraisal. If you are able to get seller paid concessions, this can allow for a lower amount needed at closing.But keep in mind the real estate market will drive a seller’s willingness to assist with your closing costs. You can also work with a down payment assistance program that allows the lender to help offset closing costs by adjusting the rate,
I’m hoping this gives a little more clarity about down payment assistance grants but if you still have questions and would like to discuss please give us a call. If you would like to see if you qualify please apply now.