How to Qualify for Down Payment Assistance

Approximately 40 percent of potential homebuyers believe that you need a down payment of 20 percent to be able to purchase a home, according to a 2016 homeownership survey conducted by Wells Fargo. But that kind of down payment requirement is often not the case. Many down payment assistance programs will allow a buyer to put down significantly less.

The average amount of assistance available is $8,000, according to a 2016 press release from Down Payment Resource, a database of assistance programs. With so many would-be buyers struggling to enter the housing market, being knowledgeable about down payment assistance can be the key to helping you make buying your first home affordable.

Basic Eligibility Requirements for Down Payment Assistance

Although qualifying requirements for getting down payment assistance will vary by provider, a few details are generally true for most. Here are some common requirements to be eligible for down payment assistance:

1. Homeownership programs are restricted to owner-occupants.
2. Typically, the buyer must participate in homebuyer education counseling.
3. Many down payment assistance programs are for first-time homebuyers or those who haven’t owned a home in the past three years.
4. Other eligibility criteria usually include stipulations on the buyer’s citizenship, the home’s sale price and the buyer’s income as compared with the area median income.

Find Out: 5 Ways You Can Buy a House Even If You Don’t Meet Income Requirements

Types of Down Payment Assistance Programs

Government agencies, non-profit organizations, and financial institutions offer down payment assistance in many different forms, such as zero-interest loans, tax credits and cash grants. You can maximize the amount of assistance you receive by leveraging more than one type of program.

Federal Programs for Down Payment Assistance

The Federal Housing Administration is a part of the Department of Housing and Urban Development. FHA loans can make you a homeowner with as low as a 3.50 percent down payment. The interest rate for a 30-year fixed-rate FHA loan is 4.50 percent.

The U.S. Department of Agriculture offers rural development loans with zero down and lower mortgage insurance costs. Loans like these are available for low- to moderate-income households for the purchase of homes in eligible rural areas.

For veterans and active duty service members, the U.S. Department of Veterans Affairs guarantees a portion of their home loan so that lenders will accept the generous terms. A VA loan boasts no down payment, no private mortgage insurance requirement and a limit on closing costs charged to you.

Learn: From Closing Costs to Association Dues — the True Price Tag of a New Home

State and Local Programs for Down Payment Assistance

Although there’s no first-time homebuyer federal grant available to individuals, HUD does provide funds to state and local governments to fund mortgage programs. Each state’s housing finance agency offers different programs, such as housing bonds, housing credits, and the HOME Investment Partnership program for low-income individuals. The best way to see what’s available in your state is to visit the HUD website’s state directory, select your state, click to “Learn about homeownership,” and select the link for assistance programs.

State or local governments can also issue Mortgage Credit Certificates. MCCs allow you to claim a tax credit on your federal income tax return. The amount of the credit depends on the state or city that issues the MCC to you, but the IRS caps the credit at $2,000 annually. Lenders can use the estimated amount of your credit as additional income to help you qualify for your mortgage loan.

Down Payment Assistance Programs From Non-Profit Organizations

Several non-profit organizations offer down payment assistance programs for first-time homebuyers. The National Homebuyers Fund, for example, provides up to 5 percent of the loan amount in down payment funds. NeighborWorks America also offers down payment assistance by partnering with community-based organizations. To see if an organization is HUD-approved, you can search the directory at the HUD website.

Down Payment Assistance Programs From Financial Institutions

Many financial institutions offer low-cost mortgage programs and down payment assistance to eligible buyers. A number of these programs are limited to first-time homebuyers who meet certain credit qualifications and fall below the program’s income limits. Check with your own financial institution to see what programs it offers and what steps you should folllow.

Wells Fargo’s LIFT program provides down payment assistance and homebuyer education in partnership with non-profit, NeighborWorks America. Assistance through LIFT supports sustainable housing in cities affected by the economic downturn, according to NeighborWorks America.

Chase’s DreaMaker Mortgage program offers a down payment of 3 percent and lower mortgage insurance requirements. Additionally, individuals who complete their homebuyer education program will receive $500. You must meet certain income requirements to be eligible for this assistance.

Quicken Loans offers a 1 percent down payment option for individuals who earn less than the area median income in their county, have a credit score of 680 or higher and have a debt-to-income ratio of 45 percent or less.

Keep Reading: This Is the Credit Score You Need to Buy a House