According to a survey by LendingTree, the biggest obstacle (54%) to buying a home is the down payment. What those respondents may not realize — and you may not either — is that help is often available in the form of down payment assistance (DPA). These programs provide funds to qualified buyers (including eligible military buyers) to use for down payments and closing costs.
“These programs can help buyers get into a home faster so they can start building equity now,” explains Stacey Daniels, EVP & Chief Operating Officer for AAFMAA Mortgage Services LLC (AMS). “Down payment assistance can be used with VA, conventional, FHA or USDA financing,” she adds. (It’s worth noting that some of these programs let buyers put zero down. However, there may be financial benefits to making a down payment, including the opportunity to pay a lower VA funding fee, have more affordable monthly mortgage payments, and offset closing costs.)
The amount you’ll need for a down payment varies from zero with VA Home Loans, to 3% with some conventional loans, and 3.5% with FHA financing. “Even with those minimums, some buyers using conventional and other types of financing may want to put 20% down to avoid having to pay for private mortgage insurance (PMI),” Daniels says.
Important: Ask your lender if you can use down payment assistance for your loan.
Related: Should You Put Money Down Even If You Don’t Have to?
What Is Down Payment Assistance?
Down payment assistance is typically structured as a grant or loan and is offered by nonprofits and government agencies, including the U.S. Department of Housing and Urban Development (HUD), and local and state housing authorities.
Most organizations will determine eligibility by your household income and credit history, but thresholds will vary. Some programs will give you an amount (percentage) based on the home’s sale price, while others will pay only up to a certain limit.
Some programs are restricted to first-time buyers, typically defined as someone who has not owned a home in the past three years, although this requirement is often waived for servicemembers and Veterans.
For most programs you’ll need a minimum credit score of 620 or higher and an income that meets the program’s requirements. Many programs also consider your debt-to-income ratio (DTI), which is the percentage of your gross monthly income you use each month to cover the cost of auto loans, credit cards, student loans and other recurring debt.
Some programs will also require that you complete homeowner education courses.
Typical Forms of Down Payment Assistance
Most assistance comes in the form of grants and loans offered at the state and local levels.
- Grants — These are the most desirable form of assistance since they provide money that homeowners never have to repay — it’s considered a gift. Be careful to read the terms because some programs use the label “grant” but may actually be putting a second lien on your home.
- Forgivable Loans (at zero percent interest) — Forgivable mortgage loans are second mortgages you don’t have to pay back as long as you remain in a home for a certain number of years. If you move before then, you may have to repay all or a portion of the loan, so, again, be certain you understand the terms of the loan.
- Repayable Second Mortgage — A repayable second mortgage requires the down payment assistance to be paid back at the sale of the home, future refinance and will include a monthly payment based on current market rates.
- Matched Savings Programs — Otherwise known as individual development accounts — matched savings programs let buyers deposit money into an account with a bank that agrees to match the funding. “The buyer can then use all of the funds in the account for their down payment,” says Daniels.
DPA Programs for Military Buyers, Veterans
Several state and local jurisdictions offer down payment programs for servicemembers and Veterans. These include:
- The Texas State Affordable Housing Corporation (TSAHC) Homes For Texas Heroes program provides servicemembers and Veterans throughout the state a grant of 3% to 5% of the first loan amount for down payment/closing costs.
- The Florida Housing Finance Corporation offers a Florida First & Military Heroes Program that provides qualifying buyers using government-backed financing (FHA, VA, or USDA loans) a first mortgage loan at a low interest rate.
- The Atlanta Neighborhood Development Partnership (ANDP) Veterans Program provides affordably priced newly renovated homes and down payment assistance ranging from $5,000 to $30,000.
- In Maricopa County (Phoenix), Home in 5 Advantage program offers 2.5% or 3.5% down payment/closing cost assistance grant and an additional 1% down payment assistance grant for servicemembers and Veterans. The program allows a household income of $88,340 and home prices of up to $300,000.
Finding Down Payment Assistance
To find programs in your area, check out HUD’s list of local home buying programs by state and contact your local city and county housing authorities to see if they offer any grant or loan programs for homebuyers. There’s also a terrific nationwide resource you can use to search for programs in your area.
“Once you’ve looked at the options, you should connect with an AMS Military Mortgage Advisor to run the numbers to see if you are ready to buy a home and what loan options are right for you,” says Daniels, noting that AMS offers VA, FHA, and conventional financing.
We’re Here to Help
Whether you’re thinking about buying, ready to start home-shopping in earnest, or considering a refinance, an AMS Military Mortgage Advisor will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of affordable mortgages designed to meet your needs. Ensuring AAFMAA Members obtain the best mortgage possible is our mission.
Get your free mortgage assessment today or give us a call at 844-422-3622!