Buying a home is a joyful, exiting, stressful, nerve-racking, prideful, distrustful, and hopeful time. Along with a bunch of other adjectives that you can conjure up. There are so many components of going through the purchase process that it can seem like a whirlwind. Especially for the vast majority of Americans who do not buy property on a regular basis.

That is why there is so much importance put on the topic with this blog, it can be a very impactful educational topic that can help a lot of people.

For today’s purpose, we are going to jump into down payment assistance programs. These programs help people cover the down payment, and often the closing costs also, on a home purchase. There is a lot that goes into this topic, just like everything with real estate, so pardon the long post and tons of detail. We just want to make sure you get everything you need.

History Lesson – Down payment assistance programs are heavily designed to help people with low to moderate income in their pursuit to own a home (heads up high income earners, there are very few down payment assistance programs available to you). In 1977 the Community Re-Investment Act (CRA) was created for the purpose of requiring banks to put a larger focus on populations who were in these lower to middle income classes, in both assisting them with their financial needs and in education around finances. This act later opened the door for down payment assistance programs to come into play (around 1994), and for many years programs like Nehemiah and Ameridream assisted people in their home buying processes.

After the 2008 Financial Crisis, updates (through the Housing & Economic Recovery Act and other subsequent acts) brought about alterations to down payment assistance programs (along with pretty much everything else in the mortgage world, as it should have) and programs like Nehemiah and Ameridream were no more.

Now-a-days, down payment assistance programs have largely been altered to two different program types:

1. Non-Profit entities such as Neighborworks and others.
2. HFAs – Which are state or local chartered organizations. HFA stands for “Housing Financing Agencies” and are usually run by a board that was put in place by the state’s governor.

These changes have brought more stability to the down payment assistance programs and also the American real estate industry, in general.

Why are down payment assistance programs available?

Down payment assistance programs are not really required for home buying. People all over the country successfully save up enough funds to cover the standard 3.5% down payment with FHA and 3% down payment with conventional loans (first-time Homebuyer only, all other buyers pay 5% down with conventional). So why such a push for these programs? Here are some stats:

1. 72.2% of women and 62.2% of men cite down payment as a major barrier to purchase a home, among recent studies.
2. 69.2% of Millennial’s and 68.5% of Gen X’ers report down payment as a major obstacle to home buying.
3. 65.9% of low income renters and 70.4% of middle income renters cite down payment as the major barrier to buying a home.

So, though people accomplish the savings they need to meet down payment requirements, many people have to delay their home buying opportunities due to the down payment savings they need to build up. And, of course, for some people, it would not be entirely feasible to accrue enough savings in a moderate amount of time. They would likely have to skip home buying for most of their lives.

Hence, down payment assistance programs having their place.

It is good to point out that, financially, if someone is able to save up their own funds to purchase a home, it could be better for them in the long run. This can come for two reason:

1. Some down payment assistance programs require monthly payments on the funds they loan you to cover the down payment and closing costs. They also can charge interest on the funds. So, if this is the only option available to you, saving up your own money instead of increasing your monthly mortgage payment and the interest you pay could often be smart.
2. Even if the down payment assistance program you are approved for does not charge interest or require monthly payments, training yourself to manage your finances to the extent that you save up your own funds for down payment is a strong lesson in money management. This can help you out quite a lot in your lifetime by giving you the belief you can achieve your goals with your money, and by giving you the know how to save for investments and other priorities. I do not know if a study has been done, but I would assume that those who save up their own funds also learn, through experience, to build emergency funds for when water heaters, furnaces, and other appliances in your home go out, among other possible repairs. Those who did not need to save for down payment may not place the same importance in planning for unanticipated costs, as they have not had to save in the beginning. This is, of course, just theory.

Regardless, the point of the down payment assistance programs are to assist lower income households in possibly jumping one of the larger barriers to home ownership, and ensuring a stronger real estate economy.

How do you find out what down payment assistance programs are available in your state?

Locating down payment assistance programs where you wish to buy is not difficult. There are going to be two directions to go (as it seems with much of this conversation).

1. Talk to you mortgage loan officer – When you are getting approved to buy a home, your mortgage loan officer will have access to the available programs in your area and can go through each one of them with you. There will be positives and negatives with each and you need to go into detail on what those positives and negatives are.
   • For instance, in South Dakota, negative examples that Neighborworks could have would be you may have to pay back the money borrowed on a monthly basis, their program is not approved with FHA loans, and their income maximums are fairly low. For South Dakota housing, you can never turn the property into a rental property down the road, which may be a key point of you buying the property.
2. You can also look for HFA’s on your own with this website – https://www.ncsha.org/housing-help/. For instance, in South Dakota, the available HFA is South Dakota Housing. Each state will show different, available options.

Regardless what programs are available in your area, just remember qualifying for them is the key. Each will have their own income criteria, asset criteria, and other requirements. Also, some of the programs may not require you yo use down payment assistance to use their program. Sometimes, just using an HFA can provide lower interest rates, but you are not required to borrower funds from them for down payment. So, if you have your money already for down payment, but qualify for the lower rate due to qualifying for the HFA, you can still choose to look that direction.

Quick Conclusion

All-in-all, you will need to review the down payment assistance programs alongside the other available programs. Sometimes down payment assistance programs will provide the clear direction for you to put yourself in the best spot. Sometimes, bringing your own funds in (depending on the amount) could provide you lower payments, lowering long-term costs, and more flexibility with refinancing if interest rates go lower. Keep an open mind going into your approval and make sure you understand the positives and the negatives of every option available to you.

Home ownership is pretty cool, if you do it right. And I hope you do (or don’t, if you realize renting is the better option for you). Make sure you do your due-diligence and you will likely be fine.

And for an extra that has nothing to do with this post- want a reminder of what the Midwest looks like in winter?