Home Buying a Home A Guide to Down Payment Assistance Programs (DPA) for First-Time Homebuyers

A Guide to Down Payment Assistance Programs (DPA) for First-Time Homebuyers

by Kimberly Fischer
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Buying a home can be both joyous and overwhelming – sometimes at the same time!

When you consider the investment you’re about to make as a first-time homebuyer, it’s normal to feel anxious and unsure of where to start. To help you out, we’ve assembled a step-by-step guide to help you muddle through one of the most stressful parts of the home buying process: making your down payment.

Depending on who you ask, a first-time homebuyer’s down payment typically ranges from three to six percent of the total cost of the home you’re buying. Regardless of your budget, it’s a considerable sum of money to shell out all at once. In fact, the inability to afford a down payment is one of the biggest impediments to homeownership. The good news is, you can access financial assistance if you need it, and that’s what we’re going to talk about today.

If you are a first-time homebuyer, especially, there are lots of options. It’s all about determining which one is the best choice for you, your home, and your future.

What is Down-Payment Assistance (DPA)?

Down payment assistance, or DPA, is any fund or program that offers financial aid to invest in a purchase. Here, we’ll be specifically discussing down payment assistance for buying a home. These funding programs can be lifesavers when it comes to investing in your future. They provide options where you might otherwise have none.

There are approximately 2,000 programs like this across the USA, so check to see what’s available in your state. Some types of DPAs include:

  • Deferred Payment Zero-Interest Loans. With this option, you don’t have to start paying back your loan for a few years after purchasing your home. The key here is to make sure that it’s zero-interest, or you may build up quite a hefty fee in the years that your payment is deferred.
  • Forgivable Zero-Interest Loans. As long as you meet the stringent conditions of the loan, the payments can be waived after several years, and you might not even need to pay interest.
  • Low-Interest Loans. Most lenders won’t give you an unsecured loan without some form of collateral, like a car. You may be able to get this type of loan from an employer.
  • Grants. A grant allots a sum of money that doesn’t require repayment. 

Who Can Access a DPA?

Financial difficulties can be a significant obstacle for any potential homebuyer, but, fortunately, DPA can support almost anyone struggling to achieve their goal of homeownership. According to a 2017 study by Urban Institute, approximately 53 percent of renting respondents said that saving for a down payment was keeping them from buying a home.

Keep in mind that down payment assistance is not intended to help you buy high-end properties. If you are saving up to buy your dream home with a three-car garage and a swimming pool, you’ll have to keep working hard and saving on your own. DPA is meant to support those who would not otherwise be in a position to own a home, like lower-income households. 

Eligibility for DPA

A 2018 study released by Urban Institute suggests that anywhere from 22 to 51 percent of citizens living in urban areas may qualify for down payment assistance. These financial packages may offer amounts ranging between $2,000 to $39,000 per recipient.

Being informed about program availability and your own eligibility can make all the difference for your homeownership goals. Be aware so you can access the resources available to you.

The requirements to receive a DPA vary from state to state and program to program, so it’s important to do some research of your own. However, while each program has unique features, there are usually a few common qualifiers.

  • First-time homebuyer. According to the U.S. Department of Housing and Urban Development, a first-time homebuyer can be anyone who has not owned a home in three years. This can also be applied to your spouse or partner, as long as you are buying the property jointly. Not every program follows the HUD’s guidelines, but if you fit this scenario, there’s no harm in applying.
  • Income. DPA is meant to serve those in the low-to-moderate income levels. There’s often an income limit you have to fall under to be eligible to receive support.
  • Location. There are certain approved locations to buy a home, known as ‘target areas,’ that will help you qualify for DPA.
  • Other variables. Taking a homebuyer’s education course can sometimes help you qualify. It’s always a good idea to do some research to see what you might be eligible for.

In the end, the amount you get can be a little bit of a lottery, depending on the above factors, and others that may be specific to your geographical area. 

Next Steps

After you’ve successfully applied for DPA, you’ll be able to take out a home loan from an approved mortgage lender that participates in the program. Because there are many possible loan options from each lender, you should shop around before making your final decision. You might also be eligible to receive a sum to cover closing costs on the purchase as well.

Special Groups

Many grants and loans are specifically available for veterans, minorities, or those with disabilities. There is also one for law enforcement officers and certain members of the public service called Good Neighbors Next Door.

How To Access DPA

DPA funds are offered annually by agencies, charities, employers, and local governments. These groups are funded in turn by the federal government, whose fiscal year begins in October. You’re more likely to have a successful application in the fall when the organizations that offer DPA have the most abundant funds.

If you’re unsure about how to find the down payment assistance programs that are right for you, Nerd Wallet has aggregated a list of resources by state. You can also search Google using phrases such as “down payment assistance grants and loans in [your state].”

Final Thoughts

We know that coming up with a down payment on a house can be an exhausting and nerve-wracking process, but we hope that this guide gives you some insight into how you can get the help you need.

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