The first consideration (of course after all of the excitement of buying a pretty place to call your very own, and daydreaming of a fresh start) when buying a home, is determining where the money will come from.
The reality of it is, there are funds available to you that you may not have considered. Down payment assistance is not a ‘dirty little word’, and as an informed home buyer you should consider all of your financing options.
Where does money for down payment from and who is it for?
These funds are provided by a variety of programs, and include grants, as well as interest-free loans.
Down payment money is available for anyone that qualifies as long as the programs are funded. With an increase in home prices over the years, many home buyers are using some form of down payment funding in order to realize their dream of home ownership.
There are four main types of down payment programs, however because they are provided by a large number of sources; namely banks and non-profits, it can be very overwhelming and confusing for most home buyers if they decide to use one of these programs.
Types of Down Payment Funding
These programs considered ‘gifts’ and are provided by a third party and does not have to be repaid by the homebuyer. There is also no ‘note or deed’ associated with it and it does not become subject to a lien on the property that is purchased.
The funds may be used as a down payment and/or to pay closing costs.
Second Mortgage Programs
A type of down payment program that many people don’t consider or view as down payment assistance comes in the form of second mortgages.
These are usually funded by a federal, state or local government DPA program, nonprofits and even employers that may offer down payment help in their service area.
The terms of these programs vary and payments may be deferred, or portions or all of the down payment help may be forgiven over time.
Three types of second mortgages are:
- soft second mortgages (must repay)
- silent second mortgage/deferred (must repay once the borrower sells, refinances or if the home is no longer the borrower’s primary residence)
- forgivable second mortgage (some or all of the down payment the borrower received when the home was purchased is forgiven. It depends on the number of years that has passed once the home is no longer the borrower’s primary residence)
MCCs– Mortgage credit certificates are also a form of down payment assistance, and can be used with most home loans. Originally designed to help first time home buyers, and those with low income to realize the dream of home-ownership. A portion of the mortgage interest is converted into a tax credit.