In the past, you were required to make a 20% down payment to purchase a home. In fact, many traditional mortgage lenders still require a 20% down payment today. Times are changing, and this practice is no longer the norm.
While it is still best to put as much down as you are able, there are programs that allow you to put as little as 3.5% down! If that amount is too large for you, there are also down payment assistance programs available to help you make the down payment.
Down payment assistance programs (DPA) were created with the sole purpose of assisting home buyers in making the initial payment for their future home. Provided that certain criteria are met, you can even buy a new home if you have a low income. When you work with an approved lender like Compass Mortgage, the mortgage loan process no longer needs to be a mystery.
Depending on where you live and your circumstances, there are four different DPA programs that you can use.
The first is a grant. A grant is similar to a loan because in both, you are given money to make your purchase. The difference is, for a grant, you don’t have to pay the money back!
Next is a traditional loan. This is when a lender decides how much they are willing to lend you and you pay them back the full amount in monthly payments—plus interest—over a set period of time.
Then you have a forgivable loan. These are second mortgages that are forgiven over a set number of years, typically five. These loans must be repaid if you sell, refinance, or move.
Last is a deferred loan. This is also a second mortgage on a home, but repayment is only necessary when you sell, move, or refinance.
These loans can be interest-based, with an interest rate that could be either lower or higher than your current mortgage rate. However, the most common form of DPA is a grant, which does not need to be repaid. The downside is that they are not offered everywhere, so check with your local lender to see if it is offered in your state. With that being said, the interest rate that you have will be determined by your personal circumstances and the type of down payment assistance loan you have.
The criteria you need to meet to qualify for a DPA loan will be slightly different depending on the area that you live. However, there are certain criteria that are universal. You can possibly qualify if you:
Certain areas of the country have been identified as in need of economic growth by the federal government. These areas are called target areas, and the government encourages people to purchase a home in these areas to help stimulate the economy there. If you want to have a better chance at acquiring a DPA loan, buying a home in a targeted area is a good way to do it.
How much DPA you will receive largely depends on the area that you are looking to make your purchase in. You could obtain anything from zero to tens of thousands of dollars depending on your situation and whether you will need to pay that amount back or not.
In addition to using a DPA loan for your down payment, you can also use it for closing costs in some cases. Make sure to ask your mortgage lender if this option is available when you initially apply for the loan.
The only way you can acquire a down payment assistance loan is if you go through an approved lender, Compass Mortgage being one of those lenders. In addition to that, you may also be required to take out a specific mortgage to qualify.
However, generally speaking the most common mortgage types are accepted. The four main types of mortgages are Conventional loans, VA loans, FHA loans, and USDA loans. Whether you qualify for one of these mortgages depends on your situation, so make sure to speak with your mortgage lender to see your options.
Many people who are trying to save up to buy a home struggle with how large of a down payment they may have to make on the home that they purchase. Fortunately, first-time home buyers have options available to help.
Down payment assistance can literally be the difference between purchasing the home of your dreams and trying to save even more money that you may not be able to afford for years. Contact Compass Mortgage today to see what kind of down payment assistance you qualify for and make the move to purchasing your first home.