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How Can I Get Down Payment Assistance? How to Find Down Payment Assistance Programs

March 13th, 2018 7:23 AM by Jackie A. Graves, President

Saving for a down payment remains the No. 1 obstacle to homeownership. However, what many people don’t know is that there are more than 2,000 down payment assistance programs available across the U.S. that may help you buy a home sooner than you think. There are also other types of homeownership incentives you should know about whether you need help with the down payment or not. These programs can be as unique as the home buyers and communities they serve ranging from grants for closing cost assistance to rehab loans, below market-rate first mortgages, mortgage credit certificates and more.

Three Most Common Types of Programs

Down payment assistance program: Down payment assistance programs are normally soft second or third mortgages or grants, providing benefits such as zero percent interest rates and deferred payments. The assistance amounts will range from a few thousand to tens of thousands of dollars and can be used towards closing cost assistance, prepaids, and/or principal reductions. Most home buyer assistance programs are provided through municipal or quasi-government agencies or non-profits.  Ask your real estate agent or mortgage lender about programs in your area. You can also search for down payment assistance programs at the Down Payment Resource Center.

Below-market first mortgages (AKA First-time homebuyer programs): Many larger housing finance agencies, particularly at the state level, offer first mortgage or first-time homebuyer programs to accompany their down payment assistance program(s). These programs often offer a below-market interest rate and may even have reduced closing costs or reduced fees. They are often funded by state housing finance agencies and may offer rates below what the normal market can provide, helping to lower buying costs and monthly payments.

The USDA also has two first mortgage programs for rural areas: the Rural Direct Loan and the Rural Guaranteed Loan. These USDA loans are primarily designed to help low-income individuals or families purchase homes in rural areas. Funds can be used to acquire, build (including purchase and site preparation to provide water and sewage), repair, renovate or relocate a home. These programs allow financing of up to, and sometimes more than, 100 percent of the selling price with no mortgage insurance requirements.

Tax Credit or Mortgage Credit Certificate (MCC): The MCC is a tax credit designed to help first-time home buyers qualify for a loan by offsetting a portion of their mortgage interest on a new mortgage. Mortgage lenders will consider the estimated monthly amount of the tax credit as monthly income that will help a borrower qualify for a home loan. The amount of mortgage credit allowed varies depending on the state or local government issuing the certificates, but the IRS cap is $2,000 per year. The buyer may continue to receive the MCC tax credit as long as they live in the home and retain the original mortgage.

Here’s an example of how the MCC works:
If a home buyer receives an MCC that offers a 30 percent credit on a $200,000 loan for 30 years with a rate of 6 percent, the allowable tax credit would be figured as follows (all numbers rounded):

Mortgage interest paid (1st year): $11,933 x MCC credit: 30 percent = Total credit: $3,579

Since the total credit amount is greater than the IRS limit of $2,000, the home buyer would report a $2,000 credit on their tax return.

Qualifications and Requirements for These Programs

While qualifications and requirements vary, many programs are for first-time home buyers — defined as someone who has not owned a home in three or more years. Eligibility is most commonly based on the buyer’s income and sales price limits which vary by city or county.

Assistance programs are for home buyers, not investors. The providers of these programs will require that the home is used as a primary residence only.

Home buyers purchasing a home in areas targeted for revitalization may receive special benefits such as higher assistance amounts, more lenient income requirements, and if there is a first-time home buyer requirement, it may be waived. There are often additional benefits, or even entirely separate programs, for educators, protectors, health care workers, veterans of the armed forces, and households with disabled members.

Most programs will require a little money down from the home buyer, as well as home buyer education, especially for first-time home buyers.

To view the original article click here             Apply to Buy a Home             Apply to Refinance

Posted by Jackie A. Graves, President on March 13th, 2018 7:23 AM

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