Did you know, saving for a down payment is the #1 obstacle to homeownership, according to a 2017 Zillow Housing Aspirations Report? Now more than ever, potential homebuyers are struggling to come up with enough cash on their first home.
While there are multiple mortgage programs available that offer little or 0% down such as the no money down USDA Loan, or the 3.5 percent down FHA Loan, saving up for all the costs associated with homeownership is still a struggle for first-time buyers.
“One of the largest barriers to entering homeownership is cash to close,” said Kenny Fryman, Loan Officer with Towne First Mortgage in Richmond.
Unfortunately, the majority of homebuyers are unaware that a myriad of downpayment assistance programs exist to help overcome that obstacle.
What is downpayment assistance?
Downpayment assistance is a financing program that helps potential buyers achieve homeownership by providing them with funds for a downpayment or closing costs. Most commonly, downpayment assistance programs are funded by the state or local government, or a nonprofit organization, in an effort to help home buyers that might otherwise be shut out of the home buying market.
“These programs were designed to help bridge the gap and help more people achieve homeownership,” Kenny said. “Most of the buyers that come into my office are completely unaware that they can get money for their downpayment at no cost to them.”
As a Virginia Housing Development Authority top producing loan officer, Kenny has helped hundreds of first-time homebuyers achieve homeownership through the VHDA’s downpayment assistance program.
Does downpayment assistance need to be repaid?
In most cases, no, Kenny says.
Assistance can be offered in the form of grants, which do not have to be repaid. Of course, there are some rules and regulations. For example, grantees must use the home as their primary residence. In some instances, the buyers must live in the home for a certain amount of time, known as an affordability period, to avoid having to pay the money back.
“With some programs, such as the Federal Home Loan Bank downpayment assistance program, you’re required to live in the home for a least five years. If you move before that five-year period, you’re required to pay a percentage of the money back,” says Kenny.
These rules and regulations were designed to ensure that the grant money is not being abused by people who are not in need of the assistance, he said.
Who can qualify?
Both the homebuyers and the house they are purchasing must meet certain eligibility requirements to receive downpayment assistance. Generally, eligibility is based on your income, and how much home you are purchasing.
Programs are typically designed for first-time homebuyers with low to median incomes. However, income and purchase price limits often vary from program to program and can even vary depending on your location.
For instance, first-time homebuyers in the Richmond, Virginia area must have a household income of less than $70,500, per household of two or fewer people, to be eligible for the VHDA Downpayment Assistance Grant. The same program’s income limit in the Washington D.C. area is $100,500, due to the higher cost of ownership in that area.
The VHDA Downpayment Assistance Grant provides eligible first-time homebuyers with up to 3.5 percent of their home’s purchase price.
In some cases, home buyers who receive the grant funds must take a course on homeownership in order to qualify.
“These classes allow these first-time buyers to fully understand every aspect of their mortgage and the responsibilities and benefits of homeownership. They also provide helpful homeownership and financial tips,” said Kenny. “Buying a home is a huge commitment, so it’s important to have all the information necessary so that you can keep up with that commitment.”
How can you find and apply to a downpayment assistance program?
A good place to start is the Department of Housing and Urban Development website, which has a list of programs available in each state.
Your local Towne loan officer will be able to help provide you with more thorough information on local programs in your area and can help determine if you’re able to qualify.
“It’s good to have a local loan officer who is knowledgeable about the downpayment assistance programs available to you in your area, who will take the time inform you about what you can qualify for,” said Kenny. “If your loan officer isn’t doing this for you, then you’re not getting the right kind of service.”
Even if you have enough money for a down payment, you should still strive to take advantage of these programs, says Avery Tuell, Loan Officer with TowneBank Mortgage in Virginia Beach.
“For example, I once had a client who had enough money for a down payment but couldn’t qualify for her desired mortgage because her debt-to-income ratio was too high. (Debt-to-income ratio is a formula used by lenders to determine your ability to pay back your mortgage.) So, she got a grant for her down payment, and used the money she had saved up to pay off her car loan. That helped to readjust her debt-to-income ratio in her favor so that she could qualify for her mortgage.”
If you’re interested in learning more about the benefits of a down payment assistance program, speak with your local Towne Loan Officer.
Kenny Fryman (NMLS# 1085540) is a Loan Officer in Richmond for Towne First Mortgage (NMLS #1609478). He can be reached via phone at 804-263-5054 or through email at Kenny.Fryman@townefirstmortgage.com.
Avery Tuell (NMLS# 607869) is a Loan Officer in Virginia Beach for TowneBank Mortgage(NMLS #512138). He can be reached via phone at 757-714-1413 or through email at Avery.Tuell@townebankmortgage.com.
The information contained herein (including but not limited to any description of TowneBank Mortgage, its affiliates and its lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. This is not a commitment to lend.
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