Every average American family dreams of owning a home of their own. But this dream becomes a reality only for a select few. Most folks who belong to the lower and middle income group are still unable to afford homes of their own. The reason for this is mostly their inability to make a down payment on a new home.
What is down payment assistance?
You can get as much as 97.5% of the home sales costs financed through home loans. But you are still required to raise 3% of the final cost of the home on your own. Plus, there is the 1.25% closing costs that form a part of the 3% that has to come out of your pocket. And if you are from the lower or middle income group raising this 3% is indeed quite a challenge. You cannot always rely on your savings or help from family and friends. Now, down payment assistance programs can give you a real helping hand and help you own a home of your own.
Down payment assistance programs offer home buyers gift funds that can be utilized to cover the initial costs of buying a home. The great news is that these funds need not be paid back. Down payment assistance programs are offered by non-profit organizations committed to helping people become home owners. The down payment funds offered by these organizations usually range from 3% to 6% of the home’s sale price.
How does it work?
Down payment assistance may seem too good to be true for a home buyer who is in desperate need for money. But it is a very smart business proposition – one that involves the seller, the home buyer and a third party which in this case is a non-profit organization. Here’s how this program generally works:
1. The buyer looks for a suitable home. Some down payment assistance organizations have a list of homes for sale from which the buyer may choose to own a home. The buyer must also check with the lender, in most cases the FHA and get the mortgage pre-approved.
2. If the seller agrees for the down payment assistance program, she must make a donation (which is usually tax deductible) to the non-profit organization instead of reducing the sale price of the home. The organization, on the other hand, uses the donation to provide funds for the buyer. The seller gets to sell the house, the buyer can afford a new home and the organization receives a portion of the donation. It’s a win-win situation for everyone. The reason for the third party involvement is because federal housing regulation prohibits a seller from directly giving a buyer down payment money
Advantages of down payment assistance programs:
There are many benefits to the buyer. The buyer can buy a home even if she doesn’t have money for down payment and she does not have to pay back this fund. The seller can attract more number of buyers for his home under this program. The seller does not have to lower the sale price of his home and usually gets a tax deduction which he can utilize to offset the capital gains tax he has to pay for the sold property. This program is profitable for all parties involved.
Organizations that offer down payment assistance:
There are many organizations that offer down payment assistance programs. AmeriDream Inc. offers a popular assistance program but buyers must purchase a home enrolled in The AmeriDream Down Payment Gift Program. Nehemiah is a private California non-profit organization that offers down payment assistance programs to first time homebuyers. Under the Nehemiah program, buyers can get down payment assistance for up to 6% of the final contract sales price. The buyers can use this fund as a down payment or to cover the closing costs on the home. Several builders like Remington Homes in Illinois have associated with Nehemiah to offer gift funds to first time home buyers. There are other organizations like HART, Partners in Charity, Family Home Providers, Futures Homes Assistance, Genesis, NewSong, Responsible Home, Quickdown and American Family Funds that provide down payment assistance.
Things to keep in mind while opting for down payment assistance:
There are a few things to consider while opting for down payment assistance. First, use a real estate agent to appraise the value of the home you wish to buy. Some sellers inflate the price of their home to offset the donation to the third party organization. Second, look around for the down payment assistance program options available to you. Make sure you are dealing with a reliable, ethical organization- AmeriDream and Nehemiah are well-recognized down payment organizations. Ask a lot of questions and get the facts straight. Be well-informed. Once you’re through with all these procedures, sit back and enjoy your very own home.
<p>Annie Celsia is an expert on mortgage planning and homeownership who works as a freelance writer for <a href=”http://www.remington-homes.com/”>Illinois Home Builder</a>, Remington Homes. She writes interesting and informative articles that help home buyers make smart financial decisions while making a very important decision in their life – investing in a new home. </p>
