Down Payment Assistance – How Does It Work?

by Kevin GrahamJune 30, 2017 in Home Buying/Selling

Are you thinking about buying a home but you could use some funding for the down payment. A down payment assistance program might just be the answer you need.

Down payment assistance can be a helpful resource during your home buying process. Let’s discuss what down payment assistance is and a couple of different ways you might go about getting it in order to give you a leg up in buying your home.

Down Payment Assistance Basics

Down payment assistance occurs when part of your down payment is funded by the government – most commonly at the state or local level – by a nonprofit charitable organization or other public entity, by a labor union or even by an employer. Sometimes lenders have programs to provide a form of down payment assistance.

One requirement for using a grant or other type of down payment assistance is that the assistance must be available (via an application process) for the general public, not created just to help you.

Getting Help from Sellers

In the past, sellers were able to contribute to the buyer’s down payment through an intermediate service that kept an account for the buyer. This practice ended with a law change that took effect in 2008.

Just because the seller can’t help you with the down payment directly doesn’t mean you can’t negotiate with sellers for other items as part of the transaction. The seller can contribute to things like attorney fees, fees for real estate tax services and title insurance. They can also help pay for points paid up front to lower your interest rate and contribute to property taxes.

There are limits to how much a seller can contribute based on the type of loan you’re going with. Be sure to discuss these limits and your options with your Home Loan Expert.

Finding Down Payment Assistance

The following apply to traditional down payment assistance beyond seller concessions. Some programs may be available in your area if you know where to look.

Publicly Available Assistance and Grants

Some publicly available grants may have specific groups they’re aimed at and you’ll have to track these down, but if may be well worth your time. A good place to start is the Department of Housing and Urban Development. It has a curated list of programs available in each state. Where available, they also list programs that are unique to the city in which you’re looking to buy.

The 1% Down (but 3% Equity) Program

Quicken Loans has a grant program for well-qualified home buyers purchasing a single-unit primary residence, condo, planned unit development (PUD) or townhouse. You can to put 1% down and get a 2% equity grant from Quicken Loans.* You’ll need to meet the following qualifications:

• In the majority of cases, you can’t make more than 100% of the median income in your area. Use this search engine to check your eligibility. If you live in an area that Freddie Mac considers underserved, these limits may not apply.
• Your median FICO score must be 680 or higher.
• For the best chance of approval, your debt-to-income (DTI) ratio should be no higher than 45%.

Those are the basics, but here’s some more detail on our Quicken Loan's % down program.