One of the very first things that come to mind for most people when deciding whether or not to purchase a home is the down payment they will have to fork over. This is arguably the biggest obstacle for the majority of would be home buyers and one that tends to cause the most strain. A Zillow survey pointed out that nearly 70 percent of renters mentioned that their biggest barrier to becoming a home owner was the down payment.
What if we told you that you could potentially qualify for assistance with that pesky down payment? You’ll be surprised to learn that it’s possible you may be able to receive help from a myriad of down payment assistance programs available throughout the state of Texas.
According to a survey done by NeighborWorks America, only 70 percent of consumers are even aware that there are low down payment programs available. Many prospective homebuyers completely overlook down payment assistance as an option simply because they automatically believe they won’t qualify.
One thing to bear in mind is that in order to determine who qualifies, these programs typically have strict guidelines. However, if you are at all concerned about not having enough money for a down payment, it may be worth looking into.
20 Percent Down - Mandatory Or A Myth?
Before we get into how Down Payment Assistance Programs actually work, let’s shed some light on the widespread belief that everyone is required to put 20 percent down when purchasing a home. This couldn’t be further from the truth. According to the National Association of Realtors’ 2018 profile of Home Buyers and Sellers, the median down payment on a house in 2018 was 13% and only 7% for first-time home buyers. When the economy is doing well and things are on the upswing, many banks and lenders will frequently accept less than 20 percent down. It is common for lenders to give buyers a mortgage (if you qualify) with 5 percent down payments and even as little as 3.5 percent for FHA loans (if you qualify) and some other government-insured programs. However, one very important thing to keep in mind is that putting less than 20 percent down does come with some associated risk. Let’s cover a few of those potential drawbacks.
⦁ Drawback # 1: Higher closing costs
Mortgage closing costs are based the size of the home loan, therefore a smaller down payment will result in a larger amount financed, hence your closing costs will correspond with that higher mortgage amount.
⦁ Drawback # 2: Higher rates
Home buyers who make minimum down payments are considered by Lenders to be a higher risk than buyers who make larger down payments, and since Mortgage lenders make loans based on risk-based pricing, they will factor in the size of your down payment along with other factors to produce the rate on your loan.
⦁ Drawback # 3: You’ll need to buy (PMI) Private Mortgage Insurance
In order to protect themselves in the unfortunate event of a default, lenders will typically require home buyers with down payments of less than 20 percent to pay for Private Mortgage Insurance. PMI is without a doubt not cheap at all.
With all of that in mind, there are also many Pro’s when using Down Payment Assistance. We will get into those a little later. For now, let’s discuss the different types of DPA programs and how they work.
Types of DPA Programs And How They Work?
Down Payment Assistance Programs can be administered directly through your Lender, a non profit organization, cities and counties or by a local or state housing authority. They provide a predetermined amount of money to qualified homebuyers who in turn can use those funds to cover both their down payment and or their closing costs. Usually you’ll have to agree to use the home as your principal residence and live in it for a certain period of time in order to avoid having to repay the money. In some cases, if your down payment assistance is treated as a loan, it would have to be paid in full if you finished making all of your mortgage payments or if you sold the property.
There are 3 primary types of DPA programs:
⦁ Second Mortgage Loans – The most common form of down payments assistance programs, many second mortgage loans offered by state and local governments have low or zero interest rates, and the payments are deferred over a specified time span and, in many cases, the loan is completely forgiven over time.
Note: Some second mortgages have lower rates than your first mortgage while others require the same rate or a higher rate than that and some are even interest-free.
⦁ Tax Credits – Certain housing finance agencies as well as state and local governments issue what are called mortgage credit certificates to certain home buyers who meet specific requirements. Technically, these credit are not really a down payment assistance program like the other two options, but tax credits can reduce the tax burden for home buyers and in essence free up additional funds for closing costs and the down payment.
⦁ Down Payment Grants – Down Payment Grants come in slightly behind second mortgage loans as the most common type of DPA program. These grants are gifts given by an eligible third party which do not have to be repaid by the homebuyer.
How Can DPA Programs Benefit You?
Well, as mentioned above, down payment assistance can help you to rather quickly get over one of the biggest obstacles keeping you from purchasing a home …and that is having to save up for a 20 percent down payment. Here is an example on how down payment assistance can help you save time. For instance, if you want to buy a $200,000 house and need 5 percent down to qualify ($10,000), it would take you 3 years and 4 months to come up with that by saving $250 a month. A 2 percent DPA grant or loan cuts that down to just 16 months!
What Programs Are Available In Texas?
There are several different Down Payment Assistance programs Homebuyers in Texas may or may not have access to. Below we have listed a few:
⦁ SETH 5 Star Texas Advantage Program
⦁ TSAHC Homes For Texas Heroes Home Loan Program
⦁ TSAHC Home Sweet Texas Home Loan Program
⦁ Texas Mortgage Credit Certificate Program
⦁ My Choice Texas Home
Again, the above are just a handful of the many programs available throughout the state of Texas. The U.S. Department of Housing and Urban Development (HUD) lists many homeownership assistance programs including DPA on its State Pages.
Note: Although we are located in Corpus Christi, Texas, it is important to note that we do service the entire state of Texas. However, for those of you reading this post who do reside in Corpus Christi, we wanted to list below one of the more popular DPA programs that is exclusive to Corpus Christi residents only. ⦁ CCHFC – Corpus Christi Housing Finance Corporation
Who Is Eligible For Down Payment Assistance?
One of the more frequent questions we receive here at Willow Bend Mortgage is “how do I know if I qualify for down payment assistance?” Let’s take a closer look at some of the more common criteria for qualification as well as some of the things that may make you ineligible.
Every state as well as each individual program has its own set of rules (which vary by program) for determining eligibility, therefore not everyone will qualify for down payment assistance . Generally speaking though, qualifying for down payment assistance is typically based on your income and the price of the home you’re buying. Oftentimes the property being purchased must be within the programs perimeters, meaning certain geographical locations set forth by the program itself. Some programs require you to be of a certain profession, others don’t. A lot of DPA programs are limited to first-time buyers while others are more broad in nature. In some cases you may be ineligible if you’ve recently owned a home. For some programs, homebuyers may have to attend special homebuyer education training where they will learn about the mortgage process , fiscal responsibilities and everything that entails owning a home to help ensure long-term homeownership success.
How Much Could I Potentially Qualify For?
A report released by RealtyTrac found that DPA programs help homebuyers save an average of $5965 on the down payment when closing. Another positive statistic to take note of is the average savings of $11,801 on monthly house payments over the life of the loan for a total average savings of $17,766.
Depending on the area you want to buy in and the programs that are available in that particular area, you could be eligible for a few thousand dollars in the form of a second mortgage, several thousand in the form of a grant ( which you will never have to repay) or nothing at all.
We have already mentioned a few of the typical program qualification criteria above, but let’s go into the property specific items that must be met in order for the property to be considered eligible for Down Payment Assistance.
DPA Programs are primarily designed for homebuyers that will be living in the property and occupying the home as a primary residence.
Eligible property types include single-family homes, condos, town homes as well as some 2 to 4 multi-unit (multifamily) properties IF the buyer will also be an owner occupant. So as long as you are residing in the property you can also collect rental income for that property.
Depending on the programs available in your area, some programs require that the property be build after a certain specified year.
Homes that are eligible for down payment programs also have sales price limits. These limits are generally based upon the percentage of the area’s median property values.
Another common misconception about down payment programs is that they are accessible only in specific targeted areas and that is just not the case. The fact is, there are programs available in just about every community throughout the country and oftentimes for properties with price ranges above the median sales price for the given area.
What Step Do I Take Next?
By now, you should be feeling pretty confident about your newfound knowledge on DPA programs and are probably wondering what to do next. Well, your next step should be to speak with a licensed professional lender in your area in order to identify which down payment assistance programs are available to you as well as which mortgage would work best for you and your particular situation. We are a licensed lender in Corpus Christi, TX and have serviced both Corpus Christi and the communities in and throughout the Coastal Bend for over 26 years and we have extensive experience on Down Payment Assistance and Mortgage banking in general. We have had the wonderful privilege of helping over 7,000 families and counting get to experience the joy of home ownership and you could be next. Reach out today. We would be happy to be of assistance.
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*** We have made every effort to ensure the information above is accurate at the time of creating this post. The information provided in this post is subject to change with time and without notice. Please fact check with all relevant authorities and websites prior to making any mortgage related decisions. Do not assume this information is correct at the time and date you are reading this without first speaking to a licensed Residential Mortgage Loan Originator ***