Pros and Cons of Down Payment Assistance
Over 2000 down payment assistance programs in the United States offer down payment assistance to eligible homebuyers. These programs typically come in the form of grants or low-interest loans. Many state and local governments also offer down payment assistance programs. Eligibility requirements and program details vary, so it's important to research what might be available in your area. You also need to be aware of the pros and cons of down payment assistance programs.
What are the pros of down payment assistance?
The Federal Home Loan Bank's Affordable Housing Program offers grants to help with down payments and closing costs. The Neighborhood Assistance Corporation of America provides low-interest loans for down payments and closing costs. Habitat for Humanity operates several programs that help families with down payments and other aspects of homeownership. Down payment assistance programs can help you overcome some of the common challenges of buying a home. Here are some of the pros of down payment assistance.
1. Lower monthly mortgage payments
A larger down payment means you'll owe less on your mortgage each month. This can free up money in your budget for other expenses or savings goals.
2. Shorter loan terms are among the pros of down payment assistance
A bigger down payment could also help you qualify for a shorter loan term, which could save you thousands of dollars in interest over the life of the loan.
3. Avoid private mortgage insurance (PMI)
If you put down 20% or more of the home's purchase price, you may be able to avoid paying for PMI. This insurance policy protects the lender if you default on your loan.
4. Build equity faster
With a larger down payment, you'll have more equity in your home from the start. This can give you a head start on building equity and creating wealth through homeownership.
What are the cons of Down payment Assistance?
There are some potential cons of down payment assistance programs that you should be aware of before you apply:
1. You may have to repay the money
Some down payment assistance programs require you to repay the money if you sell your home within a certain time frame. Others may put a lien on your property, which would need to be paid back when you sell.
2. You could end up owing more than your home is worth
If you have to sell your home before you've built up enough equity, you could end up owing more on your mortgage than your home is worth. This is called being "underwater" on your mortgage.
3. Higher interest rate is among the cons of down payment assistance
Some lenders charge a higher interest rate for buyers who use down payment assistance programs. This could increase the amount you owe each month on your mortgage and the total cost of your loan.
4. You may have to pay additional fees
Some down payment assistance programs come with additional fees, such as origination or application fees. Be sure to ask about any potential fees before you apply for assistance.
How to qualify for down payment assistance?
Eligibility requirements for down payment assistance programs vary depending on the program and the state where you live. But some general guidelines can help you determine if you might be eligible:
1. Income: You typically must have a household income at or below a certain level to qualify for down payment assistance.
2. First-time homebuyer: Some programs are only available to first-time homebuyers, while others are also open to repeat buyers.
3. Home Location: Some programs are limited to certain geographic areas, such as low-income or specific neighborhoods.
4. Credit score: You'll typically need a good credit score to qualify for down payment assistance.
5. Occupation: Some programs may be restricted to certain occupations, such as teachers, firefighters, or police officers.
6. Military service: Some programs may be available to veterans or active-duty military members.
To find out if you qualify for down payment assistance, you can contact your state or local housing finance agency.
Down payment assistance programs can help you overcome some of the challenges of buying a home. If you're eligible for assistance, it can help you lower your monthly mortgage payments, avoid private mortgage insurance, build equity faster, and possibly even qualify for a shorter loan term. There are some potential drawbacks to down payment assistance programs that you should be aware of before you apply, such as having to repay the money or being charged a higher interest rate. Checking all the pros and cons of down payment assistance, thus becomes imperative if you are interested in buying one.