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Ready for spring 2022 homebuying season? 4 common down payment assistance questions answered

By Melinda Harris

April 2022

A global pandemic hasn’t made things easier for aspiring homebuyers: after a nearly 20% jump in housing prices and record-level competition in the real estate market, sales to first-time homebuyers fell to 27% in January 2022, when they would make up around 40% of sales in more typical times. 

Even though affordability continues to be a challenge, the good news is that there are many down payment assistance programs available to make homeownership more attainable. Considering buying a home in 2022 and want to use down payment assistance? Below are homebuyers’ 4 most common down payment assistance questions answered. 

How does down payment assistance work?

Down payment assistance program requirements, such as income and sales price limitations, vary by location. Contrary to what you may have heard, these programs are not limited to low-income borrowers and first-time homebuyers. There are many niche programs available that target certain professions, such as educators, protectors and other community heroes.

If a homebuyer meets program requirements and the application for assistance is approved, the homebuyer receives a commitment of funds for down payment, closing costs or both – and the program money goes toward the home purchase. This money is paid directly from the assistance program provider to the lender at closing. 

What types of down payment assistance are offered?

Down Payment Resource has a free search tool that enables homebuyers to find programs they may qualify for in their area. There are currently over 2,000 homebuyer assistance programs available across the country, and these programs break down into 3 primary types:

Down payment assistance programs and grants: 73% of homebuyer assistance programs are geared toward helping homebuyers make a down payment on a home purchase. Since the biggest barrier to homeownership is often the large lump sum of cash required for the down payment, it makes sense why the bulk of the homebuyer assistance programs cater to helping homebuyers offset this expense. 

Down payment assistance programs can be offered by the city, county or state where you live and come in two primary forms: as a grant which does not have to be repaid or as a second mortgage loan typically forgivable over a designated period of time. 

Affordable first mortgages: Many state Housing Finance Agencies offer first mortgages at below-market interest rates to help homebuyers lower their monthly payments and the overall costs associated with buying a home (like closing costs, for example). These programs are usually available statewide, as well as in targeted areas where agencies focus on community revitalization efforts and helping low-to-moderate income (LMI) buyers achieve homeownership. 

Mortgage Credit Certificates: These are annual tax credits for first-time buyers that reduce tax liability dollar for dollar. Mortgage credit certificates are capped at $2,000 annually by the IRS, but there are other tax credits available for first-time buyers, such as the First Time Homebuyer Tax Credit that was introduced by the Biden Administration in 2021 and tax credits for homebuyers who purchase and renovate historic homes.

Additionally, many homebuyer program providers use a combination of the solutions mentioned above to create a total assistance package for borrowers.

A note about forgivable down payment assistance

Regardless of a program’s eligibility requirements, when it comes to down payment assistance, there is one big thing prospective buyers should note: whether or not the program requires repayment or if the assistance is forgivable. Below is a quick primer on terminology. 

  • Grants  money that never has to be repaid
  • Second mortgages  often given at 0% interest, these are repaid monthly alongside your first mortgage
  • Deferred loans  second mortgages with deferred payments that are only repaid upon sale or refinance of the home
  • Forgivable loans  second mortgages forgiven over a set number of years that only need to be repaid if you move or refinance before the loan is forgiven in full

There are many different types of forgivable assistance, but the most important item to note is that funds do not need to be repaid unless the program’s terms are violated. Common repayment triggers include moving out of the home before the loan forgiveness period is up or refinancing out of a specific mortgage loan tied to the down payment assistance.

How long does it take to get down payment assistance?

The length of time it takes to receive down payment assistance varies by program and the lender you select to finance the purchase of the home. With most down payment assistance programs, the application and qualification process runs concurrently with mortgage underwriting. 

According to 2020 data from Ellie Mae, the average length of time it takes from contract to close is 55 days. As a note, using down payment assistance may make the underwriting process take longer, depending on program eligibility requirements. However, satisfying requirements upfront, such as enrolling in a homebuyer education course, will help ensure buyers get to the closing table on time.

Can you get down payment assistance with a conventional loan?

Yes, although it depends on the down payment assistance program. The maximum benefit amount and terms, like what types of loans are allowed, vary by program (for example, the average program benefit nationwide is north of $7,500). If you qualify for a conventional first mortgage loan and need more money than what the down payment assistance program provides, you’ll need to cover this gap with your own cash. Additionally, some down payment assistance programs allow layering, meaning multiple assistance programs can be used on the same loan.

There are first mortgage options available that help homebuyers get into a home for much less than 20% down. On a conventional loan, you may be able to put down as little as 3 to 5 percent of the purchase price when using private mortgage insurance. Homebuyers can then leverage a down payment assistance program to cover the cost of the down payment in its entirety, potentially using any leftover funds for closing costs.

Thankfully, there is at least one active homeownership assistance program in each U.S. county geared toward making the journey to homeownership more accessible. Search to see what programs are available in your area and connect with participating lenders. Your lender will discuss mortgage and down payment options with you and get you on the road to homeownership.

The opinions and insights expressed in this blog are solely those of its author, Melinda Harris, and do not necessarily represent the views of either Mortgage Guaranty Insurance Corporation or any of its parent, affiliates, or subsidiaries (collectively, “MGIC”). Neither MGIC nor any of its officers, directors, employees or agents makes any representations or warranties of any kind regarding the soundness, reliability, accuracy or completeness of any opinion, insight, recommendation, data, or other information contained in this blog, or its suitability for any intended purpose.

Sonia Melendez

Is there anymore information that can be given to me. Also do you know if they offer any programs for disabled veterans if so please reach out to j via mail thank you

Liz - Readynest Editor

Hi Sonia - to find programs in your area, talk to a lender or check out:

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Melinda is the Director of Marketing and Communications at Down Payment Resource, where she is responsible for the marketing, communications, and public relations goals for the company. With more than 20 years of experience in the real estate and finance industries, Melinda is passionate about homeownership.
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