One of the main barriers to owning your first home is saving enough money for a down payment. Most lenders require that you make a 20 percent down payment. If you are like most homebuyers, this figure seems daunting. Furthermore, without reaching this down payment goal, you could be stuck paying private mortgage insurance (PMI) in order to get a loan.
The prospect of making a down payment does not have to keep you from owning a home. Luckily, there are many federal, state and local programs that will help you get financing for your home. Some programs provide you with grant money you can use to make a down payment, while others limit the amount you need to pay overall. Some programs even eliminate the need to make a down payment at all. Below, learn about the grants and loans you may qualify for if you need help paying for a home.
1. National Homebuyers Fund (NHF) Grants
There are very few national or multi-state grant programs available to homebuyers, but the NHF is a great option to consider. NHF’s Down Payment Assistance (DPA) grants will help beneficiaries make a down payment or cover closing costs of up to five percent. Unlike many programs, DPA grants are not limited to first-time homebuyers. However, there are income limits and other criteria that applicants must meet. Beneficiaries never have to repay DPA grants. If approved for loans in addition to grants under the NHF program, however, homebuyers will have to uphold their loan agreements.
2. Department of Housing and Urban Development (HUD) Programs
There are many different HUD programs that can help you make a down payment on your home, get a better interest rate or even reduce your monthly mortgage payments. These programs are typically only available in specific areas and are open to specific demographics. For example, there are HUD programs that are only provided if you purchase a house in an area that is undergoing revitalization. Other HUD services are only available if you hold a specific profession such as teaching or nursing. Overall, HUD offers a great deal of programs that may apply to your needs or situation. Consider one of the following programs from HUD when buying a home:
- American Dream Downpayment Assistance Initiative (also known as the HOME program)
- Self-Help Housing Property Disposition
- Mortgage Insurance for One to Four-Family Homes
- Single-Family Property Disposition Program
- Mortgage Insurance for Disaster Victims
- Good Neighbor Next Door
- Homeownership and Opportunity for People Everywhere (HOPE)
- Energy Efficient Mortgage Program
3. FHA Home Loan Program
The Federal Housing Administration (FHA) loan program is not technically a grant. However, these loans are just as beneficial if you are having trouble purchasing a home with a traditional loan. With an FHA loan, your mortgage is insured by the federal government. In the event you cannot make payments on your mortgage, your lender will not take a hit due to the fact that your loan is already insured by the FHA. As an added benefit, FHA loans usually have low interest rates and allow you to have a lower down payment. Your down payment amount depends on your credit score. With a score lower than 580, you may qualify for an FHA loan as long as you make a 10 percent down payment. When your credit score is at or above 580, you can pay as little as 3.5 percent down on a house. Furthermore, FHA loans can result in reduced closing costs, which is an added benefit once you are in the process of finalizing the purchase of your new home.
4. HomePath Ready Buyer Mortgages
If you are a first-time homebuyer, there are many different loan and grant options available from federal and local programs. One of the services targeted at first-time buyers is the HomePath Mortgage program. This loan service is also commonly referred to as the Fannie Mae Ready Buyer program. When you qualify for this type of loan, you can pay as little as five percent down for your home. As an added benefit, you will also receive three percent cash back to cover your closing costs. While not technically a grant, the cashback option will help you pay for the expenses you face during the closing process. In addition to help paying for closing fees, you also can avoid paying for private mortgage insurance (PMI). Remember, PMI is usually mandatory when you cannot pay the full 20 percent down payment that is typically required when you use a traditional loan.
5. USDA Loans
When you want to live in a rural area, you may qualify for assistance from the U.S. Department of Agriculture (USDA). To get a USDA loan, you must meet a variety of requirements. For example, you need to have a low income. Furthermore, having a credit score of 640 or greater will help you get through the application process more quickly. You can still be approved with a lower credit score. However, the process may take more time and you will be required to provide additional documentation. Note that you are not required to run a farm in order to qualify for this type of loan. You only need to buy a home in a qualifying geographical area. These rural development loans can also be used to repair, renovate or refinance existing homes, provided that you meet the income requirements for the program. Furthermore, a USDA loan can be used to build a new home in a rural area.
6. Local homebuyer programs
It is important to keep in mind that there are very few national grant programs for homebuyers. Learning how home grants work will help you discover where to look for the funding you require. Note that the federal government does not provide grants to individuals. Instead, states and cities usually receive federal funding in order to run local housing assistance programs. Therefore, you can find a wider variety of grants and loans when you look at the state and local level.