With the stock market hitting new highs and the housing market on the rise, the national economy appears to be booming by several important indicators. Above all, the unemployment rate has dropped to new lows, which means more people are going to be contributing to the economy instead of draining it. When the economy is strong and people are working, there is greater interest in the American dream of home ownership. While the interest is there, it’s apparent that the two generations most likely to be in the market for a home feel quite different about the possibilities of home ownership. As reported in a recent survey, millennials are less confident about being able to afford a home than their parents’ baby boomer generation. Among the biggest reasons millennials and other first-time home buyers feel it’s impossible to buy a home is the fact that they don’t have a large sum of money for a down payment. This has always been a common obstacle. What many don’t realize is that there are programs, usually insured or subsidized by the government, that make mortgage down payment assistance available. There are wonderful benefits to many of these programs but also some important restrictions that need to be weighed in the balance. There are several key elements to consider.
Low or No Down Payment
With programs offered through HUD, including FHA loans, it’s possible to get a down payment as low as 3.5%. Because this type of loan is insured by the government, the amount required for a down payment is reduced. In addition to the lower percentage required upfront, most of the supplemental down payment assistance plans offered by local cities and states are given to people with FHA loans. In several large cities, the amount of down payment grant money exceeds the percentage required by subsidized loans, including FHA loans. USDA loans are similar to FHA loans, only there are USDA loans for people with low incomes that require no down payment at all. This is decided based on income, local living costs, and credit. It’s a great option for people living in more rural parts of the country.
Lower Credit Score Requirements
Another struggle that is common for people trying to qualify for a home is a low credit score. With the VA, USDA, and FHA, the bar for getting approved for assistance is much lower. Many of the government loans that help reduce the cost of down payments also assist people who have credit issues. Local metro and state mortgage assistance agencies also help people get additional grants for buyers with credit challenges. These programs may allow for a credit score as low as 580. Even if someone has a lower score than the minimum listed, there are exceptions, especially if a person can make up for it with more money down or more income than what is the average required.
Limits on What Neighborhoods Are Available
With some programs, there are restrictions on where someone buys a home in a particular area. There may be a cap on how expensive a home is that you can buy as well. For example, San Diego’s local housing assistant program requires that anyone receiving down payment assistance cannot buy a home that exceeds $598,000 for a detached home. There are similar limitations in most other local programs around the country. While plenty of the down-payment assistance programs allow locals to find any home they can get approved for, others require that a person must buy a home in designated low-income housing area. This requirement might bother some, but it should be noted that many large and small cities across America are building new homes and replenishing old neighborhoods with new construction for subsidized housing. The new subsidized housing neighborhoods are often beautiful places to live.
Limitations on Residency
In order to prevent abuse of these assistance options, there are residency requirements put in place. While one owns a home that has been purchased with some sort of government assistance program, likely it will be required to be the owner’s primary residence. The consequences for not maintaining the home as a primary residence could include having to pay back funds given as a grant for an initial down payment. This prevents people from using subsidized loans to buy homes to flip or to use as a second or third home.
When it comes to weighing the pros and cons of mortgage down payment assistance programs, individual circumstances and local assistance option requirements will play a big role in knowing what’s best for each buyer. It’s important for buyers to get informed and meet with loan officers from whatever agencies they are considering borrowing from as well as to consider future plans. If a buyer plans to move in a year or two, committing to live somewhere as a primary resident may not be the best option. By learning about each program’s benefits and limitations, buyers can properly make a decision that best suits their future plans.