There are a variety of reasons that future homebuyers across the nation are looking into down payment and closing cost assistance programs right now. With the recent rise in interest rates, along with home prices that have been rising for a while, many borrowers need down payment assistance (DPA) just to afford the home in the first place—just because they can afford the monthly payment doesn’t mean they have the immediate cash available to purchase a home. On the other hand, many homebuyers who can afford a home don’t feel comfortable with how much their savings will be depleted; these homebuyers see down payment assistance as a way to maintain a reserve fund. Whatever the reason, all homebuyers interested in assistance run into the same issue: accessing it. Here are four tips to ensure you get the assistance you need when buying a home.
Manage credit and debt wisely.
All down payment assistance programs with at least a statewide footprint have minimum required credit scores and maximum DTI (debt-to-income) ratios that are sometimes more strict than what a mortgage alone may require. Some programs, such as Chenoa Fund by CBC Mortgage Agency, will accept credit scores as low as 600 for FHA loans (620 for Fannie Mae loans), while others have minimums as high as 640 or even 660. While avoiding debt and maintaining a good credit score is helpful in general, if you’re in the market for a mortgage (and down payment assistance) you may find it especially useful to begin paying off debt and improving your credit.
Find the right lenders.
Just because you qualify for a mortgage does not mean that you’ll be able to apply for a down payment assistance program. As a rule of thumb, homebuyers aren’t able to apply for down payment assistance programs directly through the organizations that offer it; instead homebuyers access down payment assistance through lenders that have applied to offer down payment assistance. Don’t be afraid to ask your lender what down payment assistance options they have and how down payment assistance will change the terms of your mortgage. You may also find it useful to reach out to the DPA organizations themselves to ask what lenders they work with. You can do that with CBC Mortgage Agency by visiting chenoafund.org.
Time it right.
Applying for a mortgage takes time, and sometimes applying for down payment assistance just adds to that. Where possible, give yourself some lead time on your closing date so you can handle any delays that may occur. When doing your research on the assistance programs available to you in your area, ask questions like “How much time does it take for me to learn if I qualify for this program?” or “Will this product delay my closing date?”
Keep all options in mind.
There are many lesser-known types of programs that, while not strictly “down payment assistance” programs, are able to help future homebuyers purchase a home. One example of these is a lease-to-own program. In a lease-to-own program you lease a home for a period of time and the monthly payments that you make go toward lowering the purchase price of the home, allowing you to buy the home once it’s in a range that you can afford. As an added bonus, lease-to-own programs, and other similar programs, often have more forgiving credit and debt requirements than traditional mortgages and down payment assistance programs.
Buying a home is difficult, and with the market just getting hotter many future homebuyers need all the help they can get. However, with these tips added to your toolbox you can approach the housing market with greater confidence!