Is Down Payment Assistance Right For You?
Published 7 months ago
Down payment assistance programs can be a significant advantage for those who are ready to buy a home but don't have enough money saved for a large down payment. But these programs can also have some drawbacks.
Easier to afford a home: The main benefit of down payment assistance is that it helps home-buyers afford homes because they don't have the burden of having to save for a down payment. Saving enough could take many years.
May not require repayment: Some down payment programs don't require repayment. Grants can provide money that can help you qualify for a mortgage. You would not have to repay the money if you abided by the terms, such as living in the home for a certain period of time.
Can add financial stress later: Maybe you can afford to buy a home without the assistance, but you could buy a more expensive home with the assistance. Think carefully about the long-term financial impacts of choosing assistance in this case. Many down payment assistance programs require that you repay the funds. Consider your personal budget when you're deciding whether to accept this type of help.
May come with residency restrictions: Some down payment assistance programs are structured with pay-back requirements if you sell and move before a certain time, such as 10 years.10 Consider how long you want to live in the property as your primary residence. It may be worthwhile to turn down assistance and find other ways to secure a mortgage if you plan to move during the term.
Have strict eligibility requirements: Eligibility requirements for down payment assistance are often tied to your first-time home buyer status, as well as your income, credit score, or the price or location of your home. Check to make sure that the terms of your down payment assistance program won't change as well if your circumstances change before you secure a mortgage. You may no longer qualify for your assistance loan if your income increases during the course of your home purchase.
Slower closing process: Every additional step in the loan closing process can create delays that could potentially jeopardize your purchase. Make sure that the benefits of down payment assistance are worth possibly slowing down the closing process, and that everyone involved understands that your down payment assistance could add complexity and take more time.
Alternatives to Down Payment Assistance:
You can look into a number of alternatives that might help you achieve the down payment you need if down payment assistance isn't the right fit for you. A gift from family members or close friends may be an option. In-kind assistance, such as receiving an inexpensive or free place to live in someone else's home, can help you save for your down payment. You could sell assets like a car, stocks, or other valuable items for cash for your down payment. Setting a specific savings plan can help you reduce your costs and reserve more funds for a down payment. Your plan might include eliminating vacations or eating out.
The Bottom Line:
Down payment assistance programs offer valuable benefits for first-time home buyers or repeat borrowers who need help affording a down payment. But assistance programs come with specific requirements, so they're not suited for everyone.
You might be better off without the assistance if you plan to sell your home quickly or if you can qualify for a low interest rate on your own. Evaluate all your options by considering the eligibility requirements and the long-term impacts.
Make sure to watch the video for a full explanation and determine if utilizing a Down Payment Assistance (DPA) program is the right fit for you.
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