With an FHA loan, you can buy a home with as little as 3.5% down for the purchase price. That’s not all, you can seek assistance for your down payment and closing costs. These down payment assistance mechanisms clearly remove any hurdle to homeownership for first-time homebuyers and low- and middle-income households.
Finding Down Payment Assistance
Back in the day, sellers or other parties with interest in the purchase transaction can fund the buyer’s down payment in connection with his/her FHA loan. But that all changed when these loans exhibited a higher rate of delinquency. This practice was legally disallowed with the enactment of the Housing and Economic Recovery Act of 2008.
Nowadays, FHA loan borrowers are permitted to seek down payment assistance from these groups or individuals:
- Housing agencies and entities
- Relatives and loved ones
- Sellers (through concessions)
You can apply for a down payment assistance through programs administered by federal, state or local housing agencies and instrumentalities. Even the most curated list of DPA programs may not reflect all programs available and your lender may not know every single one applicable to you. So do your homework and look up the programs near you.
Because these programs tend to operate locally, expect their eligibility requirements to vary such as the income limit, the maximum home price, and so on. These programs do generally require that you occupy the home as a primary residence and that you complete a homebuyer’s course as preparation for homeownership.
Your parents, friends, employer, a non-profit group, or a government entity as noted above can donate toward your down payment. This is called gift funding and it is allowed by the FHA for as long as these funds are explicitly stated and properly documented as gifts.
Another way that your employer can aid in your down payment is through an Employer-Assisted Housing Program as in this statewide program that promises with tax incentives.
Sellers are still not allowed to directly or indirectly help with your down payment. But they can at least help you with the loan’s closing costs through concessions.
The FHA allows sellers to give offsets of up to 6% of the purchase price that can go toward the loan’s origination and processing fees, title services, and credit report.
Qualifying for Down Payment Assistance
You don’t need to be in dire financial need to get approved for a down payment assistance. We all know that buying a home is just the beginning of homeownership and there would be costs along the way.
You can go directly to an approved HUD counselor who’s most qualified to give homeownership advice, including down payment assistance programs for your FHA loan.