For many homebuyers in today’s economic landscape, coming up with a down payment is one of the most significant hurdles to overcome. Fortunately, there are several options available that can help buyers get into a home with little to no money down. The most common 0% down loan program is through the Veterans Affairs (VA). Eligible veterans, and in some cases, active duty servicemembers, can take advantage of this no money down loan program to purchase a home. However, there are also options for non-veterans and service members to accomplish the same goal: 100% financing AKA no money down. One such option is called down payment assistance or DPA.
DPA is a program that provides eligible borrowers with funds to cover their down payment and, in some cases, closing costs as well. There are several different types of DPA programs available, including those offered via conventional and FHA loans.
Conventional Loans and DPA
Conventional loans are mortgages are the most popular loan programs today. Conventional loans are not insured or guaranteed by the federal government, unlike FHA or VA loans. Because they are somewhat riskier products for lenders, they typically require higher down payments than government-backed loans. However, to combat this, down payment assistance can be used in tandem with a conventional mortgage.
Conventional DPA programs vary from state to state, and sometimes, county to county. These programs allow eligible borrowers to use DPA funds to cover some or all their down payment and closing costs. The funds are provided in the form of a second mortgage with both forgivable and repayable options.
FHA Loans and DPA
FHA loans are government-backed mortgages that are insured by the Federal Housing Administration. Because they are backed by the government, they are less risky products for lenders, and therefore require lower down payments than conventional loans in some cases. However, even with a lower down payment requirement, many first-time homebuyers still struggle to come up with the funds needed to make their purchase; this is where DPA comes into play!
Fortunately, there are several DPA programs available to help buyers with FHA loans. There are nationwide options like the Chenoa Fund and the National Homebuyer Fund. There are also statewide and countywide programs as well. The Chenoa Fund for example, which provides borrowers with a second mortgage to cover the down payment and closing costs, is available across the country and has helped thousands of homeowners purchase a home with little to no money down. The Chenoa Fund offers several different options, including a forgivable second mortgage that does not have to be repaid as long as certain conditions are met, and repayable options that come with lower interest rates.
Extra Assistance for Closing Costs
In addition to covering the down payment, there are also programs available to help buyers with closing costs. Closing costs are the fees associated with the purchase of a home, such as appraisal fees, title fees, and lender origination fees. These costs can add up quickly and can be a significant barrier to homeownership. For example, the California Housing Finance Agency (CalHFA) offers a program called the CalHFA ZIP, which provides California homebuyers extra assistance to not only cover the down payment, but also their closing costs. This can be a significant help to buyers who are struggling to come up with the funds needed to cover all the associated costs of homeownership.
Let’s look at a real-life example – this buyer purchased a $350,000 home in Las Vegas, NV using Nevada’s Home is Possible Down Payment Assistance Program. This program has options for first time homebuyers as well as teachers and veterans & national guard servicemen.
Purchase Price: $350,000
Down Payment (3.5%): $12,250
Closing Costs: $7,500
DPA (4% of loan amount which is completely forgiven after 3 years): $13,510
Total Cash to Close: $12,250 + $7,500 – $13,510 = $6,240
Utilizing this program saved our buyer over $13,000 AND made it possible for them to achieve the American dream of owning a home and building wealth through real estate.
Although it is not for everyone, down payment assistance can be an excellent option for many homebuyers who are struggling to overcome some of the hurdles associated with purchasing a home. Both conventional and FHA loans offer DPA programs, and there are options available across the nation. If you are considering purchasing a home and are having trouble coming up with the funds needed to make the purchase, give us a call and let’s see if DPA is right for you!