How to Get Down Payment Assistance in 2022

How to Get Down Payment Assistance in 2022

TL;DR For most first-time homebuyers, saving the down payment is the hardest part of buying a home, which is why you should take advantage of low (or no) down payment mortgages. Some first-time buyers may also be eligible for down payment assistance programs, which can get you into your first home even faster.

- Stephen Freudenberg, Head of Homeownership @ Gravy

Did you know you’ll spend (on average) $226,000 on rent before you buy a home?

That’s an insane statistic, but the truth is: buying a home has never been more difficult.

The good news: many programs exist to help you buy a home faster, with less money down, so you can put your income towards building wealth for you – not your landlord.

You just need to know how to find these programs, how they work, and whether you qualify. Consider this your complete guide to finding down payment assistance.

What is a down payment assistance program?

Down payment assistance programs exist to help more people become homeowners by assisting with the biggest hurdle: accumulating the down payment.

There are thousands of down payment assistance programs in the U.S. – some offered by individual states, some offered by counties or towns.

For example, the My First Texas Homebuyer Program is available to anyone who is either a veteran or a first-time homebuyer in Texas. You can get a 30-year loan with 5% of the total to use for the down payment or closing costs.

Every program is a little bit different, but they all basically work the same. You get a grant or a borrower-friendly loan to help fund your down payment and/or closing costs. You use the money to purchase your first home and stick to the terms of the program – and you become a homeowner.

Tip: There are other ways to creatively build up your down payment fund! For example, talk to your employer. Down payment assistance is quickly becoming a trendy new employee benefit. You could also set up a house fund with Gravy+ and source cash gifts from friends and family in lieu of physical gifts for a major life event.

How do down payment assistance programs work?

There are three main types of down payment assistance programs:

Grant

A grant is money that you don’t have to pay back. There are likely still many terms and conditions to qualify, but because it’s a grant (and not a loan), you don’t have to factor any payback into your future budget.

Loans

There are three common down payment assistance program loan types:

  1. Forgivable loans: these are the next best thing to a grant. Typically all you have to do is stay in your home for a period of time (usually four to five years), and then the loan is forgiven. In the meantime, you don’t have to pay it down, and it doesn’t accrue interest.
  2. Deferred-payment loans: in this case, you get a loan for your down payment, and you don’t have to pay it until you sell your home sometime in the future.
  3. Low-interest loans: you may be able to take out a second loan for the down payment that has very little (or even zero) interest. You’ll have to pay this every month, so it’s kind of like having two mortgage payments. However, in some markets, this can still be cheaper than renting.
Expert tip: make sure you fully understand the terms of the down payment assistance program you choose! That way, you’ll be sure to keep the total you owe factored in when you’re calculating your total equity in the future.

Matching programs

Some down payment assistance programs come in the form of matched savings. For example, if you have $4,000 saved for a down payment and you meet the other requirements, some organizations may match your savings and give you another $4,000.

Should I try to get down payment assistance before applying for a mortgage?

What comes first, down payment assistance or the mortgage application? The answer: both.

Qualifying for down payment assistance typically happens around the same time you’re applying for your mortgage. Your lender will help ensure you meet the requirements of the program.

Many down payment assistance programs are intertwined with a certain type of mortgage, and going through that mortgage application is a key step to accessing the down payment assistance funds.

However, don’t wait until it’s time to apply for the mortgage to explore your options. It’s critical for first-time homebuyers to research the down payment assistance programs available to them early in the process – as soon as they know they want to buy.

Why? Because your timeline to becoming a homeowner could be a lot shorter than you thought! Don’t spend years saving for a hefty down payment when you could begin your homeownership journey with much less.

Another reason to do some research on down payment assistance programs in advance is because it could guide your home search. Some programs are only available for a certain region, so before you fall in love with a property, it makes sense to narrow down your search area.

How do you qualify for down payment assistance?

Are you a good fit for one of these down payment assistance programs? It depends. Most have requirements that include the following:

  • Under income limits: if you make too much money, even if you don’t have a lot of savings and genuinely need some down payment help, you may not qualify. In most states, if you make more than the area’s median income, your income will fall outside the limits.
  • Decent credit score: You don’t need perfect credit to qualify for down payment assistance, but most programs require at least a 620 credit score.
  • Buying in a target area: the house you want to buy is going to have to be located in a certain zip code.
  • Homeowner status: qualifying as a first-time homebuyer is typically a prerequisite for many down payment assistance programs, but technically, that usually means you simply have to have not owned a house for the past three years.

To weed out anyone who’s not using the programs the way they’re intended, there are likely going to be a couple of additional requirements, which you’ll have to prove with your tax filings. For example, the house you’re buying should be used as your primary residence and you can’t own other real estate investments.

How much can you qualify for?

It depends on the program and local home prices.

For example, Massachusetts offers up to $50,000 in grant money for first-time homebuyers in select communities. However, average home prices in Massachusetts are $610,000 (as of July 2022).

In Florida, their homeownership loan program provides a $10,000, 15-year, 3% loan – payable as a second mortgage.

The amount you’ll be able to receive in assistance is going to depend on what’s available in your area, the purchase price of the home you’re buying, and the financing you’ve chosen for the total loan.

How to find a down payment assistance program for you

Ready to see what you qualify for? Here are two ways:

Use Gravy

Download Gravy and shoot a message to our Home Advisor team. We’ll let you know what types of options are available to you based on cities where you’re looking to buy and your high-level financial picture.

You can also use Gravy to get connected with a top-tier first-time homebuyer lender. They can guide you through the qualification process when you’re ready to officially put in a mortgage application.

Check your state’s housing website

Here’s another resource in case you want to do some digging on your own in the state you’re to going to buy in. Click on your state and review the Homebuying Programs listed for each.

How long does it take to get approved and receive the funds?

One thing you should know: if you’re going to try to get approved for a down payment assistance program and a mortgage, it may take a bit longer to close on your first house. Each organization will have its own paperwork and approval process.

Keep this in mind and start your lender conversation early.

Here’s more information on how to choose the right lender for you (we’ll match you with a lender that’s a perfect fit for you today if you’re ready!)

What else should you know about down payment assistance?

Keep in mind: you can get low down payment loans with as little as 3% or 3.5% down – and the vast majority of first-time homebuyers do just that.

Freddie Mac and Fannie Mae offer first-time homebuyer mortgage products that only require 3% down if you meet the requirements. FHA loans only require 3.5% down. (And some of these down payment assistance programs work with these loan types to bring your costs down even further.)

And remember, if you’re a veteran, you can get into your first home with a VA loan, which requires zero money down. Similarly, if you are looking to buy in a rural area, you may qualify for a USDA loan, which has a 0% down option.

So even if you don’t find a down payment assistance program in your target neighborhood, there’s still a chance you can buy your first home sooner than you may have thought.

Here’s more on why you shouldn’t wait to stockpile a 20% down payment before you buy your first home.

Stephen Freudenberg
Stephen Freudenberg
Head of Homeownership at Gravy
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