Wondering how to make your dream of homeownership a reality? Today we'll be talking about down payment assistance programs and how they can help you overcome one of the biggest obstacles to buying a home: saving up for a down payment and closing costs! Many Arkansas homebuyers are surprised to learn there are a variety of down payment programs available - more than 2,000 in the US! A lot of home shoppers don't even apply for any assistance, assuming they're not going to qualify. They may feel like its too much work, and not even worth the hassle. Lenders want to get more people into homes, and these kinds of programs can help, as long as you meet eligibility requirements.
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Here are some tips to help you find a down payment assistance program that's right for you:
What are down payment assistance programs?
Down payment assistance programs (DPAs) help homebuyers cover the upfront costs associated with buying a home, including the down payment and closing costs. DPAs can be grants, loans, forgivable loans, and second mortgages.
Who is eligible?
Eligibility and criteria can vary by program, but many DPAs are designed to help first-time homebuyers or those who haven't owned a home in more than three years (re-qualifying you as a first-time buyer), low-to-moderate income families, and individuals who work in certain professions, teachers, nurses, EMT, firefighter, police officer. Centennial bank in our area has a program which benefits all these professionals. They offer a lender credit towards origination charges of $1025. They also offer $500 credit if you go through there first-time home buyer course.
Some DPAs have specific requirements for credit scores, debt-to-income ratios, and home prices. For example, on USDA RD loans, if you were buying in Fulton/Sharp/Izard county, with a family of 4 people, you'd qualify if your income was under $48150 for the low-income program or under $103,500 for the moderate-income program.
How can down payment assistance programs benefit homebuyers?
DPAs can reduce or eliminate the need for a large down payment, which can be a major barrier to homeownership for many people.
By reducing the upfront costs of buying a home, DPAs can help homebuyers qualify for a larger mortgage, which can increase their buying power and enable them to purchase a home in a better location or with more features they are looking for. So, don't cross high priced home markets off your list just yet.
DPAs can also help homebuyers build equity and wealth by allowing them to invest in a home rather than paying rent.. Programs will usually adjust specific benefits and eligibility requirements based on a percentage range of the area’s home prices and median income.
What are some examples of down payment assistance programs?
State Agencies often offer assistance to first-time homebuyers or low-to-moderate income families. The assistance can come in the form of grants or second mortgages with low or no interest rates.
Some local governments also offer assistance to homebuyers who meet certain criteria. When I bought my first home, the city of Manchester, IA had a program with down payment assistance and they would make upgrades to the home including flooring and heat and air.
Non-profit organizations and private lenders may also offer DPAs, even your employer.
John Kunkel motto mortgage has a program with a conventional loan. The borrower puts 1% down, and the lender pays 2% (up to $4,000). The buyer can receive up to 3.5% DPA on FHA. The down payment assistance can be either forgivable or repayable.
The ADFA (ARKANSAS DEVELOPMENT FINANCE AUTHORITY) Down Payment Assistance Program (DPA) can provide up to $15,000 for down payment and closing cost assistance. ADFA's Down Payment Assistance (DPA) Loan is a second mortgage with a 10-year term.
The Arkansas Dream Down Payment Initiative (ADDI) provides lower income homebuyers in Arkansas, who qualify for an ADFA first mortgage, up to $25,000. It is a second mortgage loan with no monthly payment that is forgivable over five to ten years depending on amount of assistance received.
The ADFA MCC (Mortgagae Certificate Credit) Program is a dollar-for-dollar tax credit for first time, low-to-moderate income homebuyers. The certificate is issued by ADFA and allows qualifying homebuyers to claim a tax credit of up to 35% of the mortgage interest paid per year. This can be used with any type of loan the buyer chooses.
You can find out more about these programs at https://homeloans.arkansas.gov/ and find lenders who work with these programs
Mortgageright also has a down payment assistance program that coinsides with an FHA loan. This program is a second mortgage of your 3.5% down payment, but there is no additional interest or payment. When the home is sold or refinanced, the second mortgage will have to be paid. THis is NOT just for first time homebuyers but you do need over a 650 credit score.
What loan can you get with 0 down?
VA and RD loans generally are 0 down, but may have significant closing costs, usually about 6% of the purchase price. Some of the programs mentioned can help with those costs, or they can be financed as part of your loan if the appraisal and seller allows for it. You can apply directly with the USDA, but the process is much quicker if you use a local lender. These loans usually have lower interest rates than conventional loans; rates i saw today had a 5.25% vs conventional at 6%-not a huge difference but it will add up over the lifetime of the loan. Although FHA loans do require 3.5% down, they allow higher debt to income ratios and flexible credit requirements.
These types of loans are for single family dwellings and they have to meet minimum health and safety standards. there is no acreage limit nor a maximum purchase price, though your lender may only approve you for a specific amount. Your lender will determine the credit score and interest rate, though USDA RD does have a debt to income ratio of 41% including your new mortgage payment. Like down payment assistance programs it does need to be your primary resident and you need to be a US citizen, but it doesn't necessarily have to be your first home.
How can you find out if you're eligible for a down payment assistance program?
Depending on your state, county, or community, you might have down payment assistance available to you from one of many government offices. Check with the Federal Housing Administration (FHA) and Veteran’s Affairs (VA) as well as USDA which backs rural development loans. Providing affordable homeownership opportunities promotes prosperity, which in turn creates thriving communities and improves the quality of life in rural areas.
you might be eligible based on your where you live, your occupation, or your income level. You can also search for programs that provide loans, grants, or tax credits, or others that can help you come up with your down payment faster, cover closing costs, and help move you into your perfect home sooner than you would on your own.
Talk to a trusted mortgage lender or your favorite real estate agent for guidance on available programs.
These housing authorities, lenders, not-for-profit organizations, and even your employer could be the key to getting you into a new home.
We hope you found this information about down payment assistance programs. If you're considering buying a home but struggling to save up for a down payment, these assistance programs may be a great option for you. Be sure to do your research and explore all of the programs available to you to find the one that best fits your needs, just like you should check with local lenders to see the different kind of loan program which works best for you. If you are starting your buying process, watch this video, How easy is the home loan process? Thanks for watching and have a blessed day!