We would like to share a good deal of knowledge today. How do you go from dreaming of homeownership to having your first set of keys? If you’re a first-time homebuyer, the down payment is your biggest hassle, but it may not need to be that way.
There’re over 2,500 homebuyer programs available across the nation. Want to take a look at how they work? Here are the 3 most common types of programs!
- Down Payment Assistance Programs
With 72%, down payment assistance and closing cost programs are the largest category of programs. Down Payment Assistance (DPA) is actually an umbrella term offered by federal, state, county, or local government agencies along with nonprofits and employers. DPA programs are available in two primary forms:
- Payment Assistance Grants
Grants stand for gifts at closing that is provided by an eligible third party to help cover the cost of your down payment or closing costs. These grants don’t need to be repaid by the homebuyer. Also, they don’t incur a lien on the property that is being purchased and have no associated deed.
- Second Mortgage Programs
These days, a number of down payment programs are available in the form of a second mortgage or subordinate lien. They come with varying payback provisions.
Repayable DPA programs offer down payment funds at closing often as a zero percent interest. However, some may accrue interest. These programs usually range from 5 to 30-year loans with varying repayment terms, often starting immediately or after a predetermined period. Also, forgivable second mortgage programs are responsible for forgiving some or all DPA amount. When and how much the down payment is forgiven may vary, but it’s common for a percentage of the loan. However, when the program’s conditions are not met, the loan must be repaid, often with interest.
- Affordable First Mortgages
Many larger housing finance companies, particularly at the state level, offer first mortgages to accompany their down payment assistance programs. They’re often funded by state housing finance agencies and could subsidize portions of the interest, offering rates below the normal market. This helps to lower your buying costs, monthly payments, closing costs, and waive mortgage insurance requirements.
- Mortgage Credit Certificates (MCC)
MCC is an annual federal income tax credit designed to help first-time homebuyers by offsetting a portion of their mortgage interest on a new mortgage. It is not a tax deduction and helps you qualify for a loan by reducing your annual taxes dollar for dollar. The mortgage credit allowed can vary depending on the state or local government responsible for issuing the certificates. However, it is mostly capped at a maximum of $2,000/year by the IRS. In addition, MCCs can be used alongside other down payment programs.
If you are searching for programs in your area that may be a fit for your situation, we are always here to assist you. Talk to a reputed member of Multiple Listing Service and broker century 21 today!