Get a Down Payment Grant

The downturn that started in housing in 2007 caused a big slowdown in home sales and new construction. In order to help combat the problem, different government and sometimes non-government organizations started programs to reduce or eliminate the burden of the larger down payments lenders required. This spawned some down payment assistance grant programs that are available to home buyers today.

Steps

Finding a loan

  1. Check your credit. Ever since the financial crisis, lenders have tightened lending standards. The days of bad credit, unverified income loans are gone. Before you shop for a home or go to the bank or credit union, try to get your finances in order and be sure your bills are up-to-date. Your credit can have some dings in its history, but it is important that the lender does not see any recent issues that will act as an alarm bell.
  2. Search for a lender and loan. Picking the right lender for a home loan is important. Ask friends for referrals, check with your bank, local credit unions and search for online lenders as well.
  3. Let the lenders compete for your business. The loan terms are important, but the size of the down payment, interest rate, term and costs are negotiable. If a lender knows you are not shopping around, they do not have an incentive to give you the best deal.
    • At a minimum, speak with at least two lenders.
    • If you are working with a mortgage broker, they can often shop lenders and rates for you. But remember, they are often paid on how profitable the loan is so ask for lower rates and make them compete for your business as well.
    • You can have your credit report and score pulled once and then use that to shop around. While the credit bureaus are supposed to allow for multiple inquiries for the same reason, a home purchase or auto loan for example. However, it presents fewer potential problems if you provide this information.
  4. Ask about down payment assistance. Some lenders do not work with down payment grant and assistance programs. If you plan on pursuing down payment grants, you need to ask the lender if that presents any problems. Lenders often need to facilitate the process, so you need one that is on board.
  5. Get Pre-Approved. It is much easier to search for a house with a pre-approved loan. The amount of the pre-approval also makes sure you show for homes within the right price range.
  6. Find out how much of down payment you will need. Typically, the lender requires a down payment that is a percentage of the purchase or appraised price of the property. It can range from 5% - 20% based on factors including your credit score, location and interest rate as well as the type of loan.[1][2]

Securing a Down Payment Grant

  1. Learn about a down payment assistance grant. These grants are not just for low income buyers, but they are available to buyers earning from 120% - 140% of the median area income. These are no-strings attached grants available from various sources. Banks like Wells Fargo [3] and state organizations [4] both provide access to grants and assistance.
  2. Identify organizations that offer down payment assistance in your area. Banks, credit unions, lenders and real estate agents are a good source for referrals. Also, a simple search for "down payment grants" plus your city and state on Google, Bing or another search engine should lead you to the right resources.[5]
    • You will encounter both grant and down payment assistance programs. A grant program is not repaid and the down payment assistance program is typically repaid at some point. There are fewer grant programs available today, but they still may exist in your area. Both programs can make buying your own home possible with a less money out of pocket up front.
  3. Find the granting entity's requirements. Each organization has different requirements. The Ohio Housing Finance Agency (OHFA) for example requires that you qualify for an OHFA home loan product. This requires you to choose an approved lender, supply paperwork (social security number, W2s, paycheck stubs, checking and savings account statements), and apply with a loan application. Other agencies require that that it is a Federal Housing Authority (FHA) approved loan, that you are a first-time home buyer, disabled or a recent college graduate. One example of a down payment assistance program is California's deferred payment program (CalDAP). Note that some other states have similar programs[6][7] It does create junior loan you have to repay, but the requirements are similar to grant programs.
    • Be a first-time homebuyer.
    • Occupy the property as their primary residence, non-occupant co-borrowers are not allowed
    • CalHFA borrowers must complete homebuyer education counseling and obtain a certificate of completion through an eligible homebuyer counseling organization.
    • Your income must be less than the allowable CHDAP income limits.
    • CHDAP Income Limits when using an FHA first mortgage
    • CHDAP Income Limits when using a VA, USDA or Conventional first mortgage
    • Meet the requirement of the lender and mortgage insurer / guarantor
  4. Understand if you are applying for a grant or down payment assistance. Many of the banks have other programs that reduce or eliminate a down payment for a property. The California program above is also not a grant since it creates a junior loan that is eventually repaid. Other organizations do have grants that are not repaid, confirm the type of assistance you could receive.
  5. Apply for down payment assistance. The applications all vary but the process is generally simple. A lot of the same information used to apply for the loan is also needed to apply for a grant. You will need to at least show these documents to apply.
    • Pay stubs
    • Bank statements
    • Employment history
    • Previous tax returns
  6. Use your loan officer as a resource. The organization and your loan officer should also be able to lend a hand and provide some guidance with the paperwork. The loan officer wants to close your loan since that is part of how they are paid. They can be a great resource to help drive the down payment assistance process.
  7. Identify additional requirements. In Ohio's you mush qualify for a OHFA loan product. You mush also complete a free home buyer education course offered by any HUD-approved housing counseling agency, or Use OHFA's Streamlined Home buyer Education.
  8. Find out how much assistance you can receive. This number can vary by the granting organization, your income, assets, and other factors. Speak with the representative about the different factors that go into the final amount of the grant. It can help assure you that you are received all available assistance based on the correct information.

Finalizing the Loan

  1. Select a property. Even if you were pre-approved for the loan, you will have to have the home you select inspected, appraised and approved for the final sale.
  2. Understand ALL costs. This applies to all home loans and assistance grants. It is important to look at the total cost of the house and loan which includes origination fees, closing costs and the interest rate among others things. Do not be afraid to negotiate these or walk away if the cost is just too high. While you have a lot of time invested, so does the lender. They may work with you to get the deal closed.
  3. Take a second and third look at the house and paperwork. Buying a house is not something to take lightly. Make sure all the loan terms, grants and the house is the right decision for you. The rule of thumb is that any house you sell within five years of buying is a deal you lost money on, so think things through one last time.
  4. Sign loan documents and close on the house. If the house is right and loan terms are fair, it is time to close and move in. The lender should co-ordinate with the grant assistance organization so you should not have to do more than sign paperwork.
  5. Move in to your new home.

Things You'll Need

  • Proof of Income
  • Income History (tax returns, W-2s)
  • Government ID

Related

Sources and Citations

  1. ↑ *http://chigrants.org/down-payment-and-closing-cost-assistance/
  2. ↑ *http://www.denverpost.com/business/ci_27443753/chfa-restarts-downpayment-assistance-grants-targets-millennials
  3. ↑ www.wellsfargo.com/mortgage/lift/
  4. ↑ ohiohome.org/homebuyer/downpayment.aspx
  5. ↑ *http://www.bankrate.com/finance/mortgages/down-payment-assistance-still-available.aspx
  6. ↑ *http://www.calhfa.ca.gov/homebuyer/programs/chdap.htm
  7. ↑ *http://portal.hud.gov/hudportal/HUD?src=/states/california/homeownership/buyingprgms
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