Welcome to part two in a two-part series about first-time homebuyer programs. Part two deals primarily with down payment assistance programs and concludes with a list of pros and cons. If you haven’t already read part one, you can jump to it by simply clicking HERE.

Have you been exploring the option of buying your own home? Are you concerned that you won’t be able to afford a down payment? Here’s some encouraging news: If you are a first-time home buyer, you may be eligible for down payment assistance from a government agency or a non-profit organization.

Let’s take a look at what down payment assistance is and how it works, as well as some alternative down payment aid programs to consider when purchasing a home.

What Is Down Payment Assistance?

As a first-time home buyer, down payment assistance can help you afford your down payment. When you buy a house, you’ll typically be required to put down a portion of the ultimate purchase price. This is referred to as your down payment.

The amount required varies, and some mortgage schemes may not require any down payment at all. Obtaining this upfront cash may be difficult for some people, which is why down payment assistance grants, loans, and programs were developed to aid first-time buyers.

One of the most significant barriers to homeownership for first-time homebuyers is the down payment. However, if you qualify as a first-time homebuyer, there are frequently down payment assistance programs available to help you with your down payment. Some will also provide additional monies to cover closing costs if the property seller does not pay them.

-Jerome Davis

Local government entities, such as states, counties, and even cities, frequently offer down payment assistance programs. Nonprofit organizations provide others.

Down payment assistance programs are available in the form of a loan or a grant. In many circumstances, a down payment assistance loan will be forgiven if specific conditions are met.

Loans for Down Payment Assistance

The California Housing Finance Agency’s (CalHFA) MyHome Assistance Program is another form of a down payment program. The program provides a deferred payment junior loan equal to 3.5% of the appraised value or purchase price, with a down payment and/or closing costs, or $15,000, whichever is less.

However, there is no loan limit if the homeowner is an employee of a school or fire service, or if they are acquiring new construction or manufactured homes.

First-time homebuyers cannot apply for a loan directly with the Housing Authority. CalHFA instead makes loans available through certified lenders. Interest rates will differ depending on your financial situation, as well as lender fees and other variables. Homebuyer education is required under the program.

It is referred to as a “silent second” because it is a deferred loan. This means that payments on the loan are postponed until the residence is sold, refinanced, or the loan is paid in full.

Most states have some kind of down payment aid loan program, while the specifics differ by jurisdiction. Check with your lender or search the term “(YOUR STATE) down payment assistance programs” on the internet.

Grants for Down Payment Assistance

Some down payment assistance schemes begin as loans but gradually become grants. These are generally known as forgiven loans.

For example, you may get a second loan from the government, but the loan could be erased provided you stay in the house for at least five years. These loans frequently have 0% interest rates, making them grants or loan/grant hybrids.

The Chenoa Fund is an example of this type of loan. It is a federally chartered, public purpose-driven government agency that exists to enable creditworthy borrowers who lack the cash to make a down payment with affordable and sustainable homeownership. The Chenoa Fund is a program that is available nationwide.

The Chenoa fund will provide down payment assistance to cover a 3.5% (FHA) or 5% (conventional) down payment based on the purchase price. The program has no income requirements, however, you cannot earn more than 115% of the typical salary in your area to be eligible for loan forgiveness.

The program has credit restrictions and is not only for first-time homebuyers.

Pros and Cons to Consider

What Are the Advantages of First-Time Buyer Programs?

• Covers your down payment and, in some cases, closing fees, allowing you to buy a house with no money out of pocket.
• Recognized programs that can be used in conjunction with conventional, FHA, and VA first mortgages.
• Despite the fact that many have minimum credit score criteria, you do not need immaculate credit to qualify.
• Programs are primarily aimed at people with low to moderate incomes.
• Many down payment aid programs provide loan forgiveness, removing the requirement for repayment.

Is There a Downside to First-Time Homebuyer Programs?

• Many first-time homebuyer programs will need you to satisfy specific income requirements. They are not usually available to the general public looking to buy a home.
• Programs are only accessible for primary residences owned by the owner, not vacation homes or investment properties.
• You will have no equity in the property you are acquiring because you will not be making a down payment. If the value of your home falls dramatically, you may be in a negative equity situation for many years.
• The 0% equity position can also bind you to the home for many years. If a home turns out to be a bad investment, you’ll be stuck with it.
• If you do not stay in the home long enough to qualify for loan forgiveness, you will be obligated to repay the down payment assistance loan balance when the property is sold.
• Refinancing or converting the home from a primary residence to an investment property may also trigger repayment.
• Monthly payments, including interest, are required for some down payment assistance loan programs.

A Parting Word from Jerome…

We have reached the conclusion of our two-part series about first-time homebuyer and down payment assistance programs. If you still have not read it, click HERE to jump to part one, which deals primarily with first-time homebuyer first-position financing. We firmly believe that, if you can qualify for them, using these programs as part of your home-buying strategy will pay dividends in the long run. I’ll catch up with you in the next one!