First things first, I think down payment assistance (DPA) is a fantastic program. Hell, I used a DPA program to purchase MY first home!
Down payment assistance programs are administered by either a local/state housing authority or a nonprofit organization. They provide the homebuyer with a specific amount of funds (1%-6% usually) to use to cover down payment and/or closing costs. Sounds great right?! I mean who doesn't love “free money”?? BUT- always remember when it comes to real estate "if it's sounds too good to be true..."
If you search ‘down payment assistance’ online you will get fed a lot of great marketing material; some of which is extremely deceptive. I'm going to be honest with you when I tell you how disappointed I am in the real estate industry as a whole and the amount of half truth marketing that takes place. You need to be very cautious about signing up for anything online and giving away your personal information. Down payment assistance programs are facilitated through approved lenders (not all mortgage companies are approved to provide DPA) so you need to START by reaching out to an approved lender to see if you qualify. If you are in Texas, feel free to reach out to me! Well of course I had to throw that in there.
2. There are Income Requirements
Down payment assistance programs will have income requirements since the programs were initially created to assist low-moderate income get into homes. The income requirements vary from program to program and go up to six figures in the Austin area. Also, do not assume you do not qualify without speaking to an approved lender first because there are tricks of the trade and just because your household income is over the limit doesn't necessarily mean you are ineligible. This is where it is important to work with a knowledgeable loan officer, like myself.
Buying a home will always have up front out-of-pocket costs. Some of these costs include:
Earnest money -Needed at the time your offer is accepted and is "good faith" funds that you are serious about buying. Earnest money is around $1,000 or 1% of the purchase price of the home.
Option money- Needed at the time your offer is accepted and goes to the seller to allow you a time period to terminate the contract for any reason. Option money is usually around $100.
Home inspection- Needed a few days after offer is accepted. Typical cost ranges $400-800 depending on the components of the home (septic system, pest inspection, etc).
Appraisal- Varies from lender to lender on when payment is required (we do charge up front and allow it to be paid at the time of closing). Appraisals costs varies from about $400-$800 depending on the market and lender.
This is the biggest shock to everyone I talk with about DPA. Interest rates on the down payment assistance programs are MUCH higher than the going rates. DPA is not "free money" as many would like to believe. This is where long term planning and goals come into play. People have a hard time getting past the interest rate when the focus should really be on the monthly payment. Are you comfortable with the monthly payment? Will the down payment assistance get you into a home sooner and help you start building wealth? These are the questions you should focus on. If you can get into a home with a payment you can afford then WIN WIN!
5. Program’s Requirements
The approved lender will make sure you qualify for the requirements of the specific DPA program but know that there are typically two types of DPA funds, grants and 2nd liens. Some programs offer the down payment assistance (DPA) as a grant (a gift that doesn't have to be repaid), while others offer it as a 2nd lien (a loan that has to be repaid). Ultimately the best DPA option will depend on a variety of factors, including your budget and how long you plan to stay in your home before you sell or refinance.
Even after you receive the assistance, you still may have some requirements you must adhere to. For example, some assistance is fully forgivable if you maintain the same loan for at least 5 years. This means if you don’t want to pay back the funds, you can’t sell or refinance the house. Some DPA programs will require you purchase a home in a specific County. Make sure you read the fine print and meet all the program’s requirements to avoid any recourse.
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