For many Americans, coming up with a down payment for their first home can be a major roadblock—and quite often the reason for renting, rather than owning a home.
A down payment is the difference between the home's purchase price and its mortgage amount. This percentage of the sale price must be paid up-front and can vary by lender, location, and loan program. A higher down payment generally translates into lower loan interest rate requirements.
Typically, a down payment comes from personal cash savings, but it can also be a gift that is not to be repaid, or a borrowed amount secured by assets.
While conventional loan down payments may be close to 20% of the sale price, government loans typically have lower down payment requirements. This allows potential home buyers who normally cannot meet down-payment requirements an opportunity to qualify for a mortgage. Keep in mind that down payments that are less than 20% of the sale price typically require mortgage insurance payments.
If you are worried about coming up with a down payment there are special programs and grants available for those who qualify. If you want more information on down payment assistance consult with your lender to see what you qualify for. Here are just two of the down payment grants that are out there.
Down Payment Grants
Want to buy a home but can’t seem to get ahead enough to save for the down payment? What if you could snap your fingers and make money appear, specifically down payment money? Well, start snapping and say hello to down payment grant programs.
Sound too good to be true? It’s not. There are programs available to help deserving folk—people with decent credit and stable work histories—get a home without having to save up for years while pouring rent money down the drain. And even better—because they’re grants, you never have to pay them back. More than 200,000 homebuyers nationwide have benefited from these programs.
Nonprofit organizations like Partners in Charity and the Genesis Program provide from 1 to 10 percent down payments, up to $22,500. While the qualifications vary according to program, each program requires that buyers qualify for financing with their lender. Other requirements may include completing a Home Ownership Counseling course, or that the home buyer provides 1 percent of their own money. Sellers are sometimes asked to contribute as well.
Sellers benefit as well from these programs. By broadening the pool of potential homebuyers, grant programs help sellers and lenders sell homes faster than they might otherwise with a smaller group of eligible buyers. In effect, down payment grant programs bring more buyers to the marketplace.
As you might expect, many programs have income/asset restrictions, recapture clauses, reserves required or geographic boundaries.
Down payment assistance programs generally participate with FHA, conforming and jumbo loan products, and can be used for single family homes, manufactured/modular home, condos, townhomes, existing or new construction, rehab and jumbo.
Most of the programs don’t underwrite the loan or add any cost in the form of points or fees. They just provide the gift for the down payment and/or closing costs.
Partners in Charity (PIC):
- Provides 2 to 10 percent down payment.
- No cash investment required of the buyer.
- No extra qualifying after mortgage lender approval.
- First, log on to www.partnersincharity.org and fill out an application to be added to PIC’s “Grant Reservation List.”
- If you’ve already selected a lender, have them call PIC, who will explain the program to them. Your lender will then determine the down payment you’ll need and will advise PIC of the amount.
- After pre-qualifying for a mortgage, your PIC mortgage specialist will refer you to a realtor who’ll help you find a home in your price range.
- The seller is required to participate in the PIC program, so it’s important to have your realtor explain it to them before making a fair offer.
- Your lender will send an appraiser to the property to make sure everything’s in working order and you didn’t overbid on the house.
- After the appraiser submits the appraisal report to your lender, they’ll approve your mortgage and settle on an interest rate.
- Now your lender will request your gift from PIC. PIC will wire your gift to the closing or escrow company prior to your closing.
- Once you move into your new home, all PIC wants in return is for you to refer someone else to them who needs help with a house down payment.
The Genesis Program
This program is similar to PIC in that it provides home buyers with free money to use toward down payments, closing costs and other funds needed to buy a house. You can receive up to $22,500, and like PIC, no lien is recorded against the home and you don’t have to repay.
- Home buyers are not required to provide any of their own money.
- Sellers are required to put up a contribution equal to the gift amount provided by Genesis to the home buyer (1 percent of the contract sales price or $750 whichever is less).
- Buyers are automatically qualified for a gift from Genesis if they purchase a Participating Home (a home in which the seller has entered into a participating home agreement with Genesis Housing Development Corp. The Participating Home Agreement outlines the contribution the seller makes to Genesis and its use.) and obtaining financing through an eligible loan program (any single-family mortgage loan that allows charitable organizations to provide gift funds to a buyer for use toward their down payment and/or closing costs. FHA guidelines allow a gift from a charitable organization as an acceptable source of borrowers “Funds to Close” [HUD Handbook 4155.1, Rev-4, Chg-1, Para.2-10C].)