Down Payment Requirements for First-Time Homebuyers
Published June 16, 2022
Saving money for a first-time homebuyer down payment is one of the most significant hurdles a person will experience. Traditionally, homebuyers have had to contribute at least 20% of the sale price as a down payment. The average price of a house in the United States is close to $300,000, so the down payment would be $60,000. This is out-of-budget for many Americans.
Thankfully, there are a variety of first-time homebuyer loan programs that enable you to make a substantially lower down payment. In fact, with some programs, the first-time homebuyer down payment is 0%. Here’s what you should you know about the options as you save for your first-time buyer down payment.
First-time homebuyer assistance programs
When an experienced homebuyer purchases a new home, they can typically use established home equity as a down payment. Unfortunately, the first homebuyer down payment can be more challenging to provide. With assistance programs, however, you may be able to purchase your first home much sooner than you think.
There are two loan programs with a 0% down payment loan program. These government-backed programs are from the U.S. Department of Agriculture and the U.S. Department of Veterans Affairs. The USDA loan program is specifically designed for low-income buyers who are purchasing property in a rural area. The VA loan program is available to active and former military professionals and qualifying family members. Both of these programs have very specific qualification requirements that many first-time homebuyers may not qualify for.
Other assistance programs
There are other options available for first-time homebuyer assistance. For example, the FHA loan program is another type of government-backed loan program. This program’s first-time homebuyer down payment requirement is 3.5%. It is available to all buyers who have a 620 credit score or higher and who meet specific requirements related to their income, debt-to-income ratio, and other criteria. There are also loan limits in place for the FHA loan program, and these vary by location.
In addition to loan programs that have a low down payment requirement, there are first-time homebuyer down payment assistance programs. For example, the Chenoa Fund is available in combination with FHA and Fannie Mae loans. This program offers up to 3.5% in first-time homebuyer down payment support. If you apply for an FHA program with a 3.5% down payment requirement, the Chenoa Fund could cover the full amount of the down payment. Be aware that options like the Chenoa Fund program for first-time homebuyer down payment assistance will be offered as a forgivable second lien. Once you have successfully made 36 on-time payments consecutively on your first lien, the second lien will be entirely forgiven.
There are also more than 2,000 first-time homebuyer down payment assistance programs available at the state and local levels. These programs each vary in terms of qualifications and the amount of down payment assistance that is available. However, it is feasible for some qualifying homebuyers to obtain several thousand dollars or more in assistance. Most first-time homebuyer down payment assistance programs require you to apply through a program-approved lender. In addition, you must use an approved loan program. These programs may include USDA, VA, FHA, and conforming Freddie Mac and Fannie Mae loans.
Be aware that the down payment assistance programs generally do not cover closing costs. Closing costs for a new home may equate to several thousand dollars or more. While these costs typically must be paid for at closing with cash, there are grants and other forms of assistance available for qualifying applicants.
Recent changes to down payment assistance programs
As mortgage interest rates trend upward, the loan amount that a buyer may qualify for shrinks. This makes first-time homebuyer down payment programs valuable even for those who have some cash saved up for the down payment on a new home. While the demand for down payment assistance programs may be strong, it is important to know that the amount of assistance available has remained unchanged. Each of the down payment assistance programs has unique qualifying criteria, and those requirements are subject to change at any time.
The housing market and mortgage industry can change rapidly at times. With this in mind, you should carefully monitor any down payment assistance programs that you intend to use up until the time your purchase is finalized.
Learn more about first-time homebuyer down payment assistance
The ability to get assistance with your down payment is valuable. In fact, it could help you get into your first home much sooner than you otherwise may have been able to. With many down payment assistance programs available as well as several loan programs that have a low down payment requirement, it is important to understand all of the options available to you. Get in touch with one of our mortgage consultants to learn more about the specific down payment assistance programs you may qualify for.