So you’ve found your dream home for your family and now have the daunting task of coming up with the down payment to make the purchase. Have you ever considered using a down-payment assistance program to help make your dream into a reality?
From down payment assistance grants to interest-free second mortgages, there are a growing number of options for people who want to purchase a home and have very little or no money to put down. Often, potential buyers have what it takes to qualify for a mortgage but haven’t managed to save enough for a down payment or simply don’t want to spend all of their savings.
When some people think of down payment assistance, they think of borrowers that are income challenged, but these programs are not just for low-income families. They are for working people who make a decent income but don’t have enough money saved for a down payment, yet want to buy today. Meanwhile, money from the these down payment assistance programs, available through state and local housing agencies, goes unused because buyers think they don’t qualify for help. This is an incentive for new home buyers to start to settle down and buy homes in these areas
In most Florida towns and cities, they provide funds in the form of low interest loans or grants to eligible residents. Potential home buyers should inquire with their local Department of Economic and Community Development to investigate whether this assistance is available.
What’s a down payment?
A down payment is the amount of money a home buyer must come up with out of his or her own pocket before qualifying for a mortgage. It represents a fraction of the total cost of a home.
In the past, down payments were required to be a minimum 20 percent of a home’s purchase price, but now in order to make homes more accessible, lenders have lowered their requirements based on the type of loan each individual is qualified for. Some loan programs now require zero to 3.5% down, depending on your credit score.
What are down-payment assistance programs?
These programs rely upon the participation of nonprofit organizations, or a variety of initiatives by state and local housing authorities, including bond programs. In each individual Florida County and city, these organizations have funds available in order to assist low-income families in covering the costs of a down payment and in some cases, closing costs. Today, nearly one in five borrowers whose mortgages are insured by the Federal Housing Administration has used the down-payment assistance programs to make their first purchase.
Who can apply for a Down payment Assistance Program loan?
Any borrower who qualifies can also apply for a DAP loan. Generally, borrowers must display that they have sufficient income to pay both loans but lack sufficient savings to afford a down payment and/or the closing costs on the home purchase
How do you apply for a Down payment Assistance Program loan?
Each individual Florida county and city has its own household qualifying guidelines. To apply for a Downpayment Assistance Program loan, prospective borrowers should contact the organization in their county providing these types of funds. If you live in Lee County you can contact the Lee County Human Resources or the City of Fort Myers for their application process.
How much Down payment Assistance can you receive?
Every county in the state of Florida has different maximum amounts allowed so it can vary. Down payments covered by these programs generally fall in the range of three percent to six percent of the homes’ selling cost. Check with your local DPA agency for details.
Funds are available on a first come- first ready basis so make sure you confirm that funds are available before your apply.
Delayed repayment loans
A buyer in Melbourne, Fla., earning as much as $73,480 a year can qualify for $10,000 in the form of an interest-free loan that doesn’t have to be repaid until the borrower sells the house.
On average, buyers get about $5,000 to $20,000 in assistance, depending on the program and the state where they live. But a few programs for buyers in high-cost areas go as high as $100,000
Many of the programs in Florida offering down payment assistance to homebuyers are structured as a second mortgage. This only has to be repaid when the house is no longer the buyers’ primary residence, i.e. is sold or the mortgage is paid off before a specified period of time. In the Lee County area, the time limit is 10 years.
The money given at closing will act as a second lien on the property that is purchased with no interest. Every year that the home is owned by the buyer the lien will be reduced by $1000 for 10 years, until the balance is $0. If within that time from you were to move out or sell the home, the balance will become due to be paid back, still no interest.
What else should you know about a DAP loan?
You will need to complete a home buyer education class.
Under this program, a borrower must attend a home buyer education class before closing on the loan. Classes are held at several locations in the state each month. The following agencies may offer such courses in the Lee County, Florida area
- Realtor Association of Greater Fort Myers – 239-936-3537 x240
- Lee County Housing Development Corporations – 239-275-5105 x102
- Housing Authority of the City of Fort Myers – 877-771-4725
- Home Ownership Resource Center – 239-768-2013
- Cape Coral Housing Development Corporation – 239-417-0922
There are some excellent down-payment assistant programs. There are also some dubious ones. It’s important to confirm that the nonprofit organization with which you’re dealing is of the former variety before making any commitments.
A good first step is to restrict your dealings to nonprofits that belong to the Home Gift Providers Association (HGPA). The HGPA members are required to adhere to a prescribed set of best practices and a code of ethics. Its website includes a list of member companies.
It’s also wise to sniff out unsavory down-payment assistance providers with a demanding list of questions. Ask each for a record of its financial stability. Ask about partnerships it enjoys with community organizations and businesses. Ask if it ever endorses the practice of allowing borrowers to use their down-payment gifts to pay off bad debts, judgments or liens in order that they might qualify for loans (HGPA discourages this). And stay alert to any sign that the nonprofit is giving kickbacks to real estate agents, mortgage brokers or anyone else involved in the mortgage transaction.