Three places to find down payment and closing cost assistance for a mortgage
Don’t let a down payment be a barrier to buying a home.
Are you considering buying a home but are having trouble coming up with the down payment or closing costs necessary to get a mortgage? Many first time (and second time) home buyers have the income and ability to be homeowners, but simply lack the sizable chunk of money needed to close the deal. This is understandable since most loan programs require a down payment between 3.5 and 20 percent of the purchase price. That is between $5,000 and $30,000 for a $150,000 home, and this does not include closing costs of an additional 5 to 10 percent.
This is often discouraging to the would-be home buyer. Fortunately, there are many options to help you get over this barrier; you just have to know where to look. The options come in the form of forgivable loans, grants, and subordinated financing programs. Let’s look at three of the most common sources of down payment and closing cost assistance.
1. State Housing Finance Authorities
There is a wide range of available programs depending on the state you’re planning to buy a home in. Visit your state’s website to learn what they have. For example, the Michigan State Housing Development Authority (MSHDA) offers up to $7,500 in down payment + closing cost assistance for first time home buyers (or repeat buyers who haven’t owned in the last three years). There are several eligibility requirements, all of which can be learned either on MSHDA’s website or through a Home Buyer Education class. This financing option works as a subordinated lien that is repaid back to the state once the mortgage is paid off. There is no interest and you can simply pay it back with the proceeds of the sale. Other state’s DPA programs operate differently though, such as the loan being forgiven completely over a period of time (such as five years).
2. Matched Savings Accounts
Also known as Individual Development Accounts, these are often three to one matched savings programs that are offered by some Cities and Counties. For example, Michigan’s Macomb County IDA program offers a six to 18 month savings program that you may contribute up to $1,000 while they match it up to $3,000. Macomb’s IDA program can also be used in combination with other DPA programs. Criteria is often based on your income compared to the area median income as well as home prices and other eligibility requirements.
Recently, mortgage lenders have caught on to the need for down payment assistance and are increasingly offering their own programs for buyers. The options and requirements range widely so it is important you contact potential lenders to see what, if any, DPA programs they have. One example is a program that MB Financial participates in with funding from The Federal Home Loan Bank of Chicago to provide up to $6,000 for down payment and closing costs. This is based on a three to one match of the borrower’s contribution of at least $1,000.”
Most down payment assistance programs will require the borrower to complete a Home Buyer Education class. Michigan State University Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy and prepare for homeownership. For more information of classes in your area, go to either http://msue.anr.msu.edu/events or www.mimoneyhealth.org. Additionally, you can take the Financial Health Survey at MI Money Health to assess if you’re financially healthy and discover more ways you can improve your financial health.
MSU Extension has released a new toolkit for homeowners who are experiencing or have previously experienced foreclosure. This toolkit will equip these individuals and families with tools to help them recover their financial stability, in the case that a recovery of their home is not possible. The toolkit is available to download free at MIMoneyHealth.org.