How to Locate Down Payment Assistance Programs

Saving for a downpayment is the biggest obstacle to homeownership. These include grants for closing costs assistance and rehab loans. They also offer low-rate mortgages, credit certificates, and mortgages with lower rates than the market.

Three Of The Most Popular Types of Programs

Assistance Program For A Down Payment: 

Assistance programs are usually second- or third-mortgages or grants that offer soft benefits like zero percent interest rates or deferred payments. These assistance amounts can be used to pay closing costs, prepaid and principal reductions. Most programs for home buyers are offered by non-profits or municipal agencies. Ask your mortgage lender or real estate agent about local programs. The Downpayment Resource Center also offers assistance programs.

First Mortgages Below-Market (AKA First-Time Homebuyer Programs): 

Larger housing finance agencies, especially at the state level offers first mortgages or first homebuyer programs in conjunction with their down payment assistance programs. These programs may offer lower interest rates than the market and have lower closing costs. These programs are often funded by state housing finance agencies and can offer rates lower than the market. This helps to lower monthly payments and buying costs.

Two first mortgage programs are available through the USDA for rural areas. These are the Rural Direct Loan or the Rural Guaranteed Loan. These USDA loans are intended to assist low-income families or individuals in rural areas with their purchase of homes. You can use the funds to purchase, construct (including site preparation and purchase), renovate, repair, or relocate a house. These programs provide financing up to and sometimes exceeding 100 percent of the sale price, with no mortgage insurance.

Tax Credit or Mortgage Credit Certificate (MCC): 

The MCC is a tax credit designed to help first-time home buyers qualify for a loan by offsetting a portion of their mortgage interest on a new mortgage. Mortgage lenders will consider the estimated monthly amount of the tax credit as monthly income that will help a borrower qualify for a home loan. The amount of mortgage credit allowed varies depending on the state or local government issuing the certificates, but the IRS cap is $2,000 per year. The buyer may continue to receive the MCC tax credit as long as they live in the home and retain the original mortgage.

Here's an example of how the MCC works:

A home buyer who is eligible for an MCC that offers a 30% tax credit on a $200,000 loan for 30 years at 6.1% interest would get the following (all numbers are round):

Mortgage interest paid (1st Year): $11,933 + MCC credit (30 percent = Total Credit: $3,579

If the credit amount exceeds the IRS limit of $2,000, the home buyer should report $2,000 on his tax return.

Requirements And Qualifications For These Programs

While qualifications and requirements can vary, most programs are available to first-time homebuyers. This means that a person who hasn't owned a home in the past three years is not eligible. These limits can vary from one place to the next.

These assistance programs do not apply to investors but are for home buyers.

Homebuyers who buy a home in revitalized communities may receive special benefits. These benefits include higher income requirements and lower assistance amounts. These benefits may include higher assistance amounts and less restrictive income requirements for first-time homebuyers.

Many programs require savings from the homebuyer.