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For many homebuyers, one of the most challenging parts of buying a home is saving for a down payment. Although conventional wisdom suggests putting down 20 percent on a home, providing even a 3 percent down payment can be a challenge for buyers, according to Fannie Mae.
Learning about down payment assistance programs can help you attract new clients and close more deals by finding ways to make purchasing a home more affordable for buyers.
What is a down payment assistance program?
A down payment assistance program provides financial aid to homebuyers, especially first-time homebuyers, low-income buyers or buyers who are purchasing in a specific location. Depending on the program, bank, or nonprofit that offers assistance, buyers will have to meet specific criteria to qualify for help with their down payment.
What type of buyer is eligible for down payment assistance?
Any homebuyer who needs help with a down payment while meeting credit and eligibility criteria may be qualified for a down payment assistance program. Each lender or program has different eligibility requirements, but they might consider:
- Income: Some programs are only available to low-income buyers or buyers under a certain income threshold.
- Credit score: Lenders typically have minimum credit score requirements for buyers applying for down payment assistance.
- Debt-to-income ratio: This is the amount of money that goes toward buyers’ debt payments each month in relation to their income. Lenders like to see a debt-to-income ratio of 43 percent or below.
- Planned tenure in the home: Some homeowners must agree to live in their home for a specific number of years when receiving down payment assistance.
- Financial literacy: Some lenders require homeowners to complete financial counseling about homeownership prior to receiving assistance.
How Realtors can use down payment assistance programs to close more deals
Many buyers don’t realize down payment assistance programs exist, making homeownership feel out of reach. If you’re an agent who’s willing to educate clients about available assistance, you can help turn more people into homeowners.
Real estate agents are often the first people to introduce lenders to buyers. Research lenders in your area, what their offers are, and if they offer down payment assistance. Once you build a network of lenders who offer financial aid, you can start sending clients their way. They will often recommend you in return.
What are the types of down payment assistance?
There are several types of down payment assistance programs. As an agent, it’s important to familiarize yourself with the different options so you can tell your clients whether they might qualify for financial help.
Understanding which program is a fit for your clients can go a long way in helping them secure the funding they need and, by extension, the sale you want. Additionally, clients are more likely to recommend you to other buyers if you have this specialized knowledge. The most common types of down payment assistance are:
Grants
Grants are a type of financial assistance that homebuyers do not have to pay back. Usually, the government or nonprofits offer grants to homeowners who might not be able to purchase a house otherwise.
Forgivable loans
If your buyer plans to live in their home for several years, a forgivable loan might be a good option. These loans do not have to be repaid as long as the buyer follows the guidelines and lives in the home for a specified period of time.
Deferred-payment loans
These loans have a unique repayment structure. If buyers use one, they will not have typical monthly payments. Instead, buyers pay back the loan when they sell or refinance their home in the future.
State and local assistance programs
Many grant and lending programs are state-specific. To find programs, research down payment assistance programs in your state or ask local lenders and other real estate agents you regularly work with for more information.
Homebuyers in any state can find programs that provide down-payment assistance using services like Down Payment Resource, which makes information available about programs and eligibility requirements through sites such as Zillow and Redfin, as well as through integrations with multiple listing services (MLSs), lenders and agents.
Some states have more than one type of assistance. For example, in Florida, qualifying borrowers can apply for the Florida Hometown Heroes Housing Program, the Florida Housing Finance Corporation’s down payment assistance program or the Florida Homeownership Loan Program.
Federal assistance programs
Most down payment programs are offered at the state level. However, there are a few federal programs that can help homebuyers, too. The offices that help homebuyers include the Federal Housing Administration, Veterans Affairs and the U.S. Department of Agriculture.
Homebuyers must meet eligibility requirements to qualify. Ultimately, to find the best assistance program for your clients, research programs at the federal and state levels.
Examples of down payment assistance programs
Research grants in your area and on the state level so you can inform your clients of their available options. Some of the options might include:
- Bank of America Our America’s Home Grant
- Chase Bank Homebuyer Grant
- The Pathway To Purchase program in Arizona
- Colorado Housing and Financial Authority Down Payment Assistance Grant in Colorado
- First Home Down Payment Assistance Grant in Iowa
- FHLBank Topeka Homeownership Set-Aside Program in Kansas
- MaineHousing Advantage Down Payment Program
- Ohio Housing Financing Agency Grants for Grads in Ohio
- Rhode Island Statewide Down Payment Assistance Grant
- Utah Housing First-Time Homebuyer Veterans Grant
- Utah First-Time Homebuyer Law Enforcement Grant
- Department of Housing and Community Development Down Payment Assistance in Virginia
Alternatives to down payment assistance programs
If a buyer doesn’t qualify for a down payment assistance program, there might be other options.
- Family gifts: Some lenders allow homebuyers to use financial gifts from families toward a down payment.
- Nonprofit-matched savings: Some nonprofits match the savings your clients already have.
- Lender down payment assistance: Some lenders offer their own down payment assistance programs.
- Crowdfunding: People use crowdfunding platforms to help others after an illness, fire, or extenuating circumstance. In certain situations, crowdfunding might be a viable option.
Down payment programs can be the difference between homeownership and renting for your clients. Meet with several reputable local lenders and work to discover all the opportunities that may be available for your clients in your region.
Luke Babich is the CEO of Clever Real Estate in St. Louis. Connect with him on Facebook or Twitter.
