First time homebuyers are deluged with many choices, information, and even some misinformation in their pursuit of an affordable home and financing.
One of the best tools used to help this group of prospective homebuyers is the “down payment assistance” programs. While these programs are all somewhat similar, the understanding of how they work is easily misunderstood.
All downpayment assistance programs are second mortgages, so you need to “team” that program with a specific first mortgage. Usually, these are either an FHA or a conventional mortgage. Rural Development loans (aka Farmer’s Home) can work, but only in the rural areas where the program is allowed. VA loans are 100 percent financing to start with, negating the need for down payment assistance.
This is the area where many First Time Buyers get confused because they may think their “down payment assistance program” is all they are getting to finance their home. The typical assistance is about $7,000. The typical cash requirement is around $500 to $1,000 from the homebuyer in order to close. All the rest of the needed money for the purchase, closing costs, and escrows is financed by the first mortgage (vehicle from above).
For example, with a $100,000 sales price, and $2,000 of closing costs and escrows, after the $500 minimum cash from the borrower and the $7,000 downpayment assistance loan, you will need a first mortgage in the amount of (100,000 + 2000 - 500 - 7,000 = $94,500) about $94,500.
This lowers the required cash to close, and since there is little or no payment on the $7,000 down payment assistance loan, the total payment for the borrower is lower.
Each down payment assistance program has different terms and approval processes. For this reason, it is also easy for buyers and occasional users of the programs to confuse which assistance program works in each situation.
Examples of some of these programs are:
• Jacksonville Housing Commission’s “Headstart to Homeownership” program.
• Housing Partnership of Jacksonville’s “down payment assistance” program and they are the administrator of the Duval County SHIP program with state funds.
• The State of Florida “Housing Agency” has three different types of down payment assistance available for people using their “bond” money first mortgages through one of the participating lenders
The type and amount of assistance usually varies with the family income. The homebuyer needs to speak with a mortgage professional that is highly experienced in what loans work with what programs and how that fits with the homebuyers financial picture.
“At The Homeownership Center at Wells Fargo Home Mortgage,” said Branch Manager Marshall Gallop, “we have extensive experience in First Time Home Buyer programs, and all the local down payment assistance programs for the Jacksonville area.
“Our team of Home Mortgage Counselors specialize in these programs so we can make sure our customers understand what they are getting and which program would be best for their unique financial situation.”