Down Payment Assistance
Our team of mortgage originators knows how to work with a wide range of Down Payment Assistance programs nationwide to help our qualified borrowers in purchasing their new home. Some down payment programs have income restrictions and/or purchase price restrictions. No matter what the case is, our origination team can help you work through the qualifying process.
If you meet the income requirements for your area, and if funds are available through the down payment program, then chances are, we can locate a HUD Approved assistance resource for you!
Many of our originators are well-versed at looking for opportunities to assist our first time home buyers with identifying and utilizing any available local or state program, as well as not for profit operations too.
Even if you have your down payment, you can utilize eligible funds to "pay down" your FHA loan mortgage balance. In many instances, these "grants" are forgiven over time. In essence, it's free money.
Using creative techniques, in some instances you can even buy a home with little or none of your own funds using our FHA Programs.
HUD does not have a particular policy regarding down payment programs in terms of applying for approval with the program. However, HUD does indeed maintain a list of HUD Approved down payment assistance programs.
When it comes to down payment programs, the primary focus for HUD is ensuring that no secondary financing (2nd mortgage, excluding HUD approved secondary financing) is closed in conjunction with an FHA insured mortgage loan.
HUD's general policy, as of this writing, is a program that adheres to HUD's secondary financing guidelines, may act as a gift agent for purchase of a home.
Acceptable gift guidelines for HUD include:
- A gift from a relative or family friend with documented and "clearly defined" interest. This gift must have no repayment requirements.
- Borrower's employer or labor union.
- A charity or not for profit organization that makes a contribution in the form of a down payment with no repayment requirements.
- A silent second mortgage, issued by a government agency.
Down Payment Savings Tip!
Not everyone is eligible for a downpayment assistance grant. For those looking for an effective and very safe way of saving up for a downpayment, here's the best tip we know in the market. If you like this tip, be sure to print it out, share it, and maybe even link to our website! We can tell you from experience, this really works!
Using our mortgage payment calculator and our debt ratio calculator, identify how much home you can afford based upon your income and your debt ratios. The FHA loan program has the lowest current downpayment requirement of 3.5%. Multiply your purchase price by 3.5% (price x .035) to identify your downpayment needs. While you theoretically might get seller paid closing costs of up to 6%, you just as well may not, as every seller and market is different. So, to have options when home shopping, multiply your purchase price by 6% (price x .06). You now have the two major cash items you need to factor when buying a home. Your downpayment and your closing costs. What you should have is something like this:
I can afford a purchase price of $150,000, based upon my estimated PITI payment factoring my current debt ratios. 3.5% of 150,000 is $5250. 6% of $150,000 is $9000. So, to be sure that I have sufficient cash on hand to buy a home, I need to save up a total of $14,250 if using an FHA program. To accomplish this, you may have to break this down into what we call "bite size" chunks. How this works.
You go to your local bank. You will want to take out a certificate of deposit in the amount of $1,500. You secure a loan with that certificate of deposit for $1,500. The loan payment terms are over 12 months (use our loan payment calculator to factor what you can afford in a monthly payment). The catch is, with some banks you have to have the cash on hand already. This is OK. What happens is, the bank will take the money out of your account, create a CD for the amount, then do a installment loan secured by the new CD -- when it's all said and done, they'll issue you a bank check for the amount taken out of your account. Some banks do charge a fee, so you'll want to shop around.
Your objective is to payoff this loan as quickly as possible, paying extra towards the installment loan as "uncommitted" funds become available. Once you've paid it off, you can roll it over and take out a new loan for what you can afford in monthly payment. Let's use the $1500 amount again as part of this example. You take out another CD for $1500, secured by another installment loan, and repeat the process.
Don't have $1500 at any one time? Start with $500 or $1000. If you don't own a home and you're paying rent, then before you pay your landlord, go down to the bank and take out a CD loan for the amount of your monthly rent.
How this process of saving for a downpayment helps you:
- First and foremost, the installment loan helps you build good credit. You never take out a loan for more than a monthly payment you can easily repay every month. Building your credit this way improves the chances of you getting approved for a mortgage in the future, as it shows the ability to pay, and in the end game, shows your ability to save. Huge for getting underwriting exceptions!
- It's safe! If something happens (you lose your job, you have a death in the family, etc.) you can safely cash out your CDs, payoff any existing loan, and usually owe nothing. If you've made payments towards your loan, you'll get the cash difference between what you paid toward your loan and what you owed. With most banks, your penalty for cashing out the CD is the loss of interest they paid you on the CD, so you can expect to get back all of your principal investment in the CD, less any principal amount owed on any loan. Again, this protects your credit from risk and usually results in enough cash to address the emergency.
- It teaches you to save. Most of us fail to "pay ourselves" -- we work the whole year, only to find at the end of the year, we have nothing in our bank accounts to show for it. Setting these types of installment payments up, secured by a CD, ensures we're paying ourselves every month as well as our other creditors.
- It gives you a goal. If you want to buy a home, but just aren't eligible for any assistance programs, it allows you to plan in "bite size" chunks. That way, if you get a bonus from work, instead of running off to spend it at the nearest big box store, you'll more than likely use those funds to pay down your installment loan, putting you that much closer to paying the loan off and being ready to take out another one to reach your downpayment and closing cost goals!
- For those that are just really bad about saving money, you can use this technique to save small amounts. Just deposit those funds into the CD secured by the loan. If you get a 2 or 3 thousand dollar tax refund, why spend it in dribs and drabs on stuff you don't need? Save it in a way that guilt will keep you from actually spending those funds.
The reality is, the FHA loan program is the best option today for taking out a low interest fixed rate mortgage in today's market. It's safe, backed by the federal government, is far more flexible in underwriting, and only requires a 3.5% downpayment. With a conventional mortgage, your credit really needs to be stellar; plus, it can require 10% to 20% down or more. You'll also need cash on hand for closing costs and typically 2 months of cash reserves. When you do the math, that's a huge amount of cash for the average person.
Below is a CD calculator you can use to factor the interest difference between what the bank will pay you on a CD, in terms of total interest, versus what you will be paying in interest on a loan secured by the CD. Yes, it's a negative net gain, and many financial advisors will say "that's just stupid!" However, for most people that have a difficult time saving, that negative net gain is well worth having an extra 5 or 10 thousand in the bank you wouldn't otherwise have the discipline to save. At the end of the whole process, a financial advisor isn't the one having to save the money (and most of these people easily make 6 figures a year, so it's easy for them to tell you to just "save your money the old fashioned way"). For those living in the real world -- making 30,40, or 60K -- by the time you get done with rent, car payments, insurance, food, electric, water, daycare, miscellaneous payments, and let's not forget all those hidden taxes, you don't quite have that much left.