Nothing is more closely associated with the “American Dream” than owning your home. And rightly so. Private property ownership is a major aspect of a free society. For years such ownership has usually been a great investment.
Is that everyone’s dream? It sure seems like it if you’re trying to buy a house in a hot market. Some claim millennials don't want to buy a house because they saw what happened in the mortgage crisis of 2008. But recent studies show most people do share this dream … they just can’t figure out how to afford it. Sound familiar? Some markets are hot, prices are rising, and competition is tough. People just starting out their careers, those burdened with lots of student debt, and those looking for a job — regardless what age they are — would love to buy a house but don’t think it’s possible financially.
One of the top reasons people give for not buying a home is the amount required for a down payment. And it turns out many are not aware of down payment and other assistance programs that can help potential buyers buy a house. Here are some that could make a difference for you whether you are a first time buyer or someone looking to buy again.
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According to one estimate there are over 2400 programs for those buying a home in the U.S. Not all of these are grants — but all can be very helpful. They include grants as well as credits you could get on your tax returns, loans and gifts from nonprofit organizations and foundations. Even if you don’t believe you could qualify for one of these programs please keep reading — you could be very surprised!
Typically, in order to receive assistance with your down payment, your income has to fall within certain parameters that have to do with the median income in the area, your credit score and some requirements for cash reserves. More than half of the programs available are reserved for first time buyers, and 14% go to active military and to veterans as well as other “local heroes”. And you will usually need to take a class about homeownership. which often can be taken online. The home you are buying must be your primary investors — downpayment aid is not available for investors. There may also be some limits on the sales price of the home.
The first myth to dispel is that such programs are only for people buying a home for the first time. That is not the case. Even if it is a requirement for some programs, the definition of a “first time buyer” is someone who hasn’t bought a home in three years. So many people assume they can’t qualify but they are mistaken - they don't know that they are considered “first time buyers.” (Learn more in our article about programs for first time homebuyers.) Here is a review of some of the most promising options for any homebuyer to get help buying a house:
One of the first places to look is a Housing Authority in the area where you want to buy. Simply do an internet search with the name of the city, county or state and the term “housing authority.” Or just search “housing authority” without specifying a location and see what comes up. When you get the results be sure to note if you are looking at an ad. Sometimes these look too good to be true and will require quite a bit of personal information in order to tell you if there is a grant for you. They may or may not be helpful.
Other results that come up will be for actual Housing Authorities whose mission is to provide downpayment assistance and other home buying help. You can contact them to find out what programs they have and if you might qualify. For example, we searched “Housing Authority” and found the Area Housing Authority for the County of Ventura (a high-priced county!). They make the point that lots of buyers do not realize that there are programs offered by the State and local communities that can help with things like the down payment, the costs of closing on a home purchase, and getting a lower interest rate on your loan. They even provide workshops about home buying several times a year so you can be aware of all your options - in English and Spanish.
The U.S. Department of Agriculture (USDA) provides home loans in areas classified ad “Rural” — hence the name Rural Development or Rural Housing Loan. If you qualify for this loan you get financing at 100% with no down payment. Though you may not consider your area to be particularly rural it could well qualify, as it is reported that 97% of the land mass in the United States does qualify. To be eligible you do also have to have an income that is equal to or less than 115% of the median income in the area where the home is. More good news: you don’t need a super credit score to be eligible — 640 and up is acceptable for a streamlined loan, and with a bit more paperwork lower scores will still be considered.
State Housing Finance Agencies exist to help people living in the state to obtain affordable housing. They run a wide variety of programs which vary greatly from state to state. The programs include everything from homeless assistance and public housing to home ownership. To fund their activities and support programs they use things like Housing Bonds and federal and state resources. They also administer the HOME program (Home Investment Partnerships). Every state has Housing Agencies and they are a good place to look for assistance buying a home. For example, the California Housing Finance Agency (CalHFA) provides valuable details on its home page. You can take online or in-person homebuyers classes in English or Spanish. You can learn about the MyHome Assistance Program including how to apply, how to qualify, what are the requirements for the borrower and for the property and more.
Update December 2017
Are you a renter who would like to buy the home you are renting? A new mortgage offering from a rent-to-own company could make that possible. Their approach takes the amount the home has appreciated in value during the time you’ve lived in it and applies that to reducing the down payment on perchasing the house. Even if the appreciation has been relatively small that can get the needed down payment down to practically zero. To qualify you have to have paid your rent on time for two years in a row and you much be considered a first time buyer. This is a pilot program that will be avilable to current renters of the homes the company owns (close to 8,000 in over 50 metropolitan areas) and to new tenants who sign up for a two year lease.
Down Payment Assistance from non-profits and private businesses is also an option.
Habitat for Humanity is probably the best known name in the non-profit home assistance area. They have done amazing work helping low income folks get into their own home. Just go to habitat.org to learn more and see what is happening in your local area. You may be just the person or family they are eager to help.
Unison is a private company that offers to put up a 10% down payment to match your 10% down payment. The agreement specifies that when you sell, Unison gets part of the increase in the home’s value. We were not able to get more details and do not know how successful this company or its client have been.
The 501©(3) nonprofit American Family Funds says that it runs the Dove Foundation Charity, helping people through the word of God and a number of ministries. One of those ministries claims to offer a Down Payment Gift Program. We were not able to determine specific details. If you are willing to provide personal information you may be able to discover more.
Wells Fargo Bank - a very legitimate lender - has joined with the non-profit NeighborWorks America to provide some assistance with down payments. The program is called NeighborhoodLIFT and CityLIFT depending on the location. They provide actual grants for $15,000 or more. The amount is determined based on the market area of the buyer. The borrower’s income must not be more than 120% of the median income in their area and, as is the case for all assistance programs we have seen, the house being purchased must be for the buyer’s primary residence.
New home buyers are definitely taking advantage of programs which lower your down payment requirements. According to a report by Down Payment Resource, in January of 2017 65% of those buying a home for the first time made down payments of 6% or less. So don’t assume you can’t buy a home! Do some research, find a trustworthy lender and see what programs you may qualify for.
If after that effort you still cannot find a way to buy a house, you still have options to improve your living situation. Check out those options in this article about home grants.