Many years ago, the primary sources of a home down payment lower than 20% were government programs like FHA and VA. Today, there are more than 1700 low down payment options available to help expedite the time it takes to put down a payment on your home.
Saving for a down payment is the greatest barrier first-time homebuyers face. More than half—56%—of a recent survey of millennial-age renters, say theyve been unable to buy a home because they havent saved enough.
Down Payment Myths
One reason for the confusion is the surprising number of renters who believe that they will need at least 20% of a homes purchase for a down payment. A recent National Association of Realtors report found that more than a third—36%—of people who do not own their own homes believe they need 20% or more. One study found that it will take a renter 6.5 years to save for a 20% down payment to buy a medium-priced home today.
Its true that you will need 20% or more to avoid paying for mortgage insurance, but most homebuyers today, especially first-time buyers, are using low down payments to shorten the time it takes to save for a down payment.
Another myth is that low-down payments are available only to first-time buyers. Its true that many assistance programs are designed to help renters looking to buy their first homes, but only about 63% are limited to first-time buyers.
Todays homebuyer can choose from a variety of assistance programs sponsored by the federal government, like FHA and VA, or from non-profit organizations like NeighborWorks America, commercial lenders like banks and credit unions, or local employers seeking to attract workers and provide a benefit to their employees. The largest number of programs are available from state and local housing agencies. Non-profit organizations and corporations also promote homeownership through programs like Wells Fargos Neighborhood LIFT.
About 6% of low down payment programs are designed to attract and reward community service workers. These include:
First responders: law enforcement personnel, firefighters and EMTs
Medical professionals, especially nurses
Mobile, Alabama has launched the Public Safety Down Payment Assistance Program to help police officers and firefighters become first-time homeowners. The program provides up to $20,000 for down payment and closing costs and up to $40,000 in certain target areas.
Since 1998, the Mississippi Home Corporation Housing Assistance for Teachers (HAT) Program is available in 40 of the 82 counties in the state. It provides a forgivable loan of up to $6,000 for teachers who agree to a 3-year teaching contract in an eligible county.
HUDs Good Neighbor Next Door program helps law enforcement officers, firefighters, EMTs, and teachers get 50% off the list price of a HUD foreclosure home.
How Down Payment Assistance Works
Most programs consist of either a loan or a grant to cover down payment and closing costs. About 10% are first mortgages, and a small number are mortgage credit certificates—a tax credit given by the IRS to low- and moderate-income homebuyers.
Similar to the way that FHA and VA work, the majority of down payment […]