Guide To Lenders
August 1, 2014

FHA Mortgage: Down Payment Assistance

Gina Pogol

In the good ol' days, sellers could literally pay you to buy a home. But no more--after discovering that seller-provided down payment assistance was causing increased mortgage defaults, FHA blew out this kind of "charity." However, assistance is available if you qualify. Here's how to find it.

A Little Help? FHA Mortgage Down Payment Assistance

Seller-funded programs are unlikely to come back. While providers like Nehemiah and AmeriDream, some advocacy groups, and members of Congress are lobbying for their return, Department of Housinb and Urban Development (HUD) Secretary Shaun Donovan is firmly set against it.

The issue is that the source of the funds isn't really a charitable organization--home builders and sellers "donate" the funds, then they're passed through the charity into the hands of the buyers. If this transfer were done directly, it would be against the rules, and now doing it indirectly is too. The practice led to the padding of home prices: homes purchased under this program sold for 2% to 3% more than comparable properties not in the program. This made property purchased with this assistance three times more likely to be underwater and end up in foreclosure.

New Home Loan Tips: The Upside of Down Payment Assistance

Down payment assistance has not gone away--there's just less of it. Help can come in the form of a no- or low-interest loan to be repaid when you sell the property, an outright grant, or some combination of the two. You usually have to be a first-time buyer, earn a low to moderate income, or both. However, in many cases, "first-time" just means that you can't have owned a home in the last three years or that you may be a displaced homemaker. Many state, county, and city governments offer assistance--keep in mind that programs can run out of funding and it's first come, first served.

The Guvvies--State, County, and City

Idaho's program is a good example of state-level assistance. Qualified first-timers get up to $20,000. Income guidelines apply, and you must take a home buying class. County assistance includes Maryland's Prince George's County's program, which gives low-income home buyers up to $60,000 to buy foreclosed homes. Cities have programs, too, like Peoria's newly reopened assistance plan. It advances up to 20% of the property's purchase price to a maximum of $10,000. You must be a first-time home buyer, unless you buy in specified areas, like the "impact zone" near Glen Oak School.

Don't Forget the Feds

In many places, there may be several programs in force--ask your city, ask your county, ask your state. Federal plans include zero-down home loans--you don't even need a down payment. The most common are VA home loans for military members and USDA loans, which can be used to purchase homes in specified rural areas. "Rural" includes most of the land in this country, and about half the population lives in designated rural areas, so check it out. If you live in a town, the suburbs, or on the outskirts of a city, you might be a "rural" resident.

Mortgage Down Payment Assistance Programs: Tips for Finding Them

  • Learn from mortgage lenders. Ask about down payment help when you shop for your mortgage. Newer loan agents may not know much about these programs, and you want to work with one who does. Mortgages with down payment assistance can be harder to close. It's best to work with someone who knows what he or she is doing.
  • HUD only knows. Go to HUD's State Information Web page, click on your state, then choose "Learn About Homeownership." That will get you to a page of state aid resources and often county and city ones as well.
  • Look under rocks. Outside of HUD, plans are pretty fragmented and harder to find. There are charities that provide all sorts of housing assistance. However, if you plan on getting an FHA mortgage (your best shot at getting the best new home loan rates), the organization must be approved by HUD. See HUD's roster of approved organizations by selecting the HUD home ownership center nearest you (Atlanta, Denver, Philadelphia, or Santa Ana, Calif.).

Down payment help is out there, and you should grab it if you can. Putting more money down on your new home purchase not only helps you now, but the added equity will help later when you refinance your mortgage.

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