With home prices in Colorado and elsewhere in the US skyrocketing, many first-time homebuyers are being met with frustration. Picture this — you spend a year or more saving money for a down payment just to see interest rates rise, meaning you will need a higher down payment to secure a home. It’s happening all over the country and is why mortgage lenders are advising clients on different down payment assistance programs for first-time homebuyers.
What is a Down Payment Assistance Program?
These are programs that can help you with the money you need for a down payment. Some assistance programs are available through your state or county government while others come from private organizations or even the seller of the property you’re interested in. No matter where the program comes from, though, they all have one goal in mind — to help you buy a home.
A USDA loan is one of the most common types of down payment assistance programs. The United States Department of Agriculture (USDA) offers these loans to help low- and moderate-income families buy homes in rural areas. USDA loans are available in every state except for Alaska, Hawaii, and Guam.
To qualify for a USDA loan, you’ll need to meet the income guidelines set by the USDA. These vary by household size, but you can check the guidelines here. You’ll also need to purchase a home in a designated rural area — again, this varies by state. You can check eligible areas here.
If you’re interested in a USDA loan, you can contact your state’s or county’s USDA office or a participating lender.
Another common type of down payment assistance program is an FHA loan. FHA loans are available to all qualified buyers, not just first-time homebuyers. An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). The FHA doesn’t lend money directly to borrowers, but it does insure mortgages.
With an FHA loan, the size of your down payment will depend on your credit score. If you have a credit score of 580 or higher, you’ll only need a 3.5% down payment. If your credit score is between 500 and 579, you’ll need a 10% down payment. And if your credit score is below 500, you’ll need a 10% down payment as well as other measures to be approved for an FHA loan.
There are a few things to consider before you apply for any down payment assistance program, though. The first is whether or not you actually qualify for the program. Most programs have income limits in place as well as other requirements like being a first-time homebuyer. You’ll also want to make sure that you understand the terms of the program and how it will impact your ability to secure a mortgage.
For example, some programs may offer a grant that doesn’t need to be repaid while others may offer a loan with interest that will need to be paid back over time. It’s important that you understand the difference before you apply so that you can make the best decision for your situation.
You should also be aware that some programs come with strings attached. For example, you may be required to live in the home for a certain period of time or take a homebuyer education course. These requirements vary by program so be sure to ask before you apply.
Down payment assistance programs can be a great way to help you buy a home, but they’re not right for everyone. Be sure to do your research and talk to your mortgage lender before you decide if one is right for you.