Forty-five new down payment assistance programs were started in the April-June quarter of this year, according to the latest edition of the Homeownership Program Index from Down Payment Resource. That brings the total number nationwide to 2,554.
Yet many prospective home buyers either don't know about the programs or don't understand them fully. In May this year, NeighborWorks America found, "While 61% [of adults aged 18+] are aware of down payment assistance programs, nearly 60% overestimate what’s actually required to buy a home, suggesting that outdated beliefs are deterring otherwise ready buyers."
Confusion About What Down Payment Assistance Programs Offer
You can understand why home buyers are confused about down payment assistance programs' offerings and eligibility requirements. Each of those 2,554 programs can set its own rules.
"On the buyer side, most down payment assistance programs have income restrictions," said The New York Times on Sunday. "Some exclude certain property types, such as manufactured homes or those needing major repairs."
That may have contributed to myths that apply to some but not all programs. The Homeownership Program Index shows that many are much less restrictive than home buyers appear to believe:
- 967 programs (38%) are available to repeat buyers
- 257 programs (10%) do not have income restrictions
- 31 programs support first-generation homebuyers
- 861 programs now support multi-family (2-4 unit home) purchases
- Of these, 573 allow for 3-unit properties, while 546 allow for four-unit properties
- 1,006 allow the purchase of manufactured homes (aka mobile homes or trailers), subject to the home meeting qualifying criteria
"On average, these programs can lower a buyer’s [loan-to-value ratio] LTV by 6%, helping more applicants qualify for a mortgage," says the Homeownership Program Index report.
What Help Can Down Payment Assistance Programs Provide?
Seventy-four percent of programs can help with closing costs as well as down payments, says the same report. And 81% come with deferred-payment loans, meaning you don't have to repay anything during your early years of homeownership.
Better yet, 51% are forgivable loans with deferred payments, meaning you will pay nothing back provided you retain ownership of your home and use it as your principal residence for a specified number of years. And quite a few offer grants: outright gifts that never have to be repaid, though, again, there may be ownership and residency provisions.
Others provide second mortgages, which you repay in parallel with your main (first) mortgage. But these second mortgages often come with low or even zero interest rates and perhaps no mortgage insurance.
If you're looking to buy a home and have written off down payment assistance programs, it might be worth taking another look.
