How to get down payment assistance when you are buying your first home

For aspiring homeowners, saving up for a down payment on that first home can be a long slog. For the typical household, the saving process now takes about seven years.

Worse, the longer you wait to buy, the less net worth you will accumulate, according to a recent study from the National Association of Realtors. Delaying entry into homeownership past age 30 is associated with “meaningfully lower net worth growth” by midlife, the study found.

That’s why young people should start saving for a home, and working to build that all-important credit score, as soon as possible.

And while you’re at it, you also should start searching for whatever help is available to get a toehold on the ownership ladder. Get a jump on any local requirements, such as a homebuyer education class, so you’ll be ready when the time comes.

“Search for local programs early,” advises Melinda Harris of Down Payment Resource, in an article for ReadyNest.com, “then connect with a lender experienced in these programs.”

The good news: There’s more help out there than ever before. According to DPR’s latest count, more than 2,600 programs are available to help with a down payment, closing costs or even property taxes. There’s at least one active program in every county in the U.S.

“The average benefit for each homebuyer from down payment programs alone is around $18,000, which can mean the difference between waiting on the sidelines and getting the keys,” says Harris.

“Despite lingering myths, down payment programs are not only for very-low-income borrowers or first-time homebuyers,” she says. “Many serve moderate-income households, and some are designed for specific groups, such as teachers, health workers, first responders, veterans, and other community-impact professionals.”

Down payment assistance and other forms of homeownership support can come from many places: state and local housing agencies, community groups, nonprofits and employer-sponsored programs, for instance. Program requirements will vary by location and source, and may include income caps and purchase price limits.

“If a homebuyer meets those requirements and their application is approved, they receive a commitment of funds to help with the down payment, closing costs, or both,” writes Harris. “These funds are delivered directly to the lender or closing agent and applied at closing, reducing the cash the buyer must bring to the table.”

DPR offers a free online search tool that helps buyers find assistance programs in their areas. Generally, such programs fall into one of three categories:

Down payment programs and grants: These “help buyers overcome the up-front cost barrier,” writes Harris. “Programs may be offered by cities, counties, states, nonprofits or other local partners, and many are paired with first mortgages to create a full affordability package.”

This money is most commonly used to ease the down payment burden, but some can also be used for closing costs, reductions in the loan’s principal or even property repairs. The latter can be particularly important to improve a home’s accessibility and livability for disabled buyers.

These programs come in two primary forms: grants, which need not be paid back, and second mortgages with varying payback or loan forgiveness provisions.

Repayable loans often come at 0% interest and typically range from five to 30 years. Payment terms vary: They can start immediately or kick in after a predetermined period. Deferred (or “silent”) second mortgages need not be repaid until you leave the house. And forgivable seconds pardon some or all of the loan amount, usually at a predetermined percentage of the loan amount for every year you remain in the house.

Affordable first mortgages: “State housing finance agencies and some local entities offer first mortgages with below-market rates, reduced fees or additional incentives,” writes Harris. “These loans are designed to lower monthly payments and improve long-term affordability. Many are available statewide, and some may include extra benefits in targeted areas focused on revitalization or low- to moderate-income homeownership.”

Low-down-payment loans a— minimum of 3% of the price of the house — are also available from conventional lenders. The Federal Housing Administration also has 3% loans, and the Veterans Affairs department offers no-down-payment mortgages. However, you’ll probably have to buy some type of insurance to protect the lender should you default.

Mortgage Credit Certificates: Harris writes: These “are annual federal tax credits for qualified first-time buyers and, in some cases, repeat buyers in certain areas. They reduce tax liability dollar-for-dollar, effectively boosting buyers’ monthly cash flow.

“As affordability challenges grow, more states and municipalities are revisiting or expanding MCC offerings,” she says.

The credit, not a deduction, helps reduce your annual income for tax purposes. The amount varies, depending on the state or local government that issues the certificates. But it is capped at a maximum of $2,000 per year by the Internal Revenue Service.

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com