Author: Dan Rafter / Source: Wise Bread
What’s the most difficult part of buying a home? For most, it’s coming up with enough money for the down payment. The good news is that there are plenty of down payment assistance programs available to help buyers overcome this financial hurdle. Most of these programs are run by state or local governments, and they usually provide grants or forgivable loans for buyers who need help scraping together the thousands of dollars for a down payment.
There is a catch, though. These programs often come with strict requirements. Some, for instance, are only available to first-time homebuyers. Some aren’t available to buyers who make too much money each year, and others require that buyers live in a home for up to five years after buying it.
(See also: 6 Ways to Get Financially Fit for Homebuying Season)Down payments are expensive
It’s no secret why down payments are such a burden for so many homebuyers — they’re costly. Consider that a 5 percent down payment on a home costing $200,000 comes out to $10,000. That’s a lot of money for buyers to scrape together, especially first-time buyers who don’t already have a home to sell.
If your FICO credit score is 580 or better, you can qualify for a loan insured by the Federal Housing Administration, better known as an FHA loan, for a down payment of just 3.5 percent of your home’s final purchase price. The Fannie Mae-guaranteed HomeReady program allows you to qualify for a mortgage with a down payment of just 3 percent. And if even that 3 percent down is too much of a financial struggle? That’s where down payment assistance programs can come in.
How down payment assistance programs work
Down payment assistance programs can work in several ways. Some will provide you with funds at closing that you can use to pay for your down payment or closing costs. Others will provide you with an interest-free forgivable loan that you can use to cover the same costs.
The Homebuyer Assistance Program run by the city of Chicago, for instance, provides buyers with a
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