Saving a down payment for a home is a big financial commitment. This is especially true if your goal is to save 20% of the purchase price. As such, many homebuyers choose to investigate a down payment assistance program. These are typically grant and government funding options that assist homebuyers who meet certain criteria with their down payment.
Unfortunately, there is a lot of misinformation circulating about down payment assistance programs. One of the most common misconceptions is that only first-time homebuyers can qualify for down payment assistance. While it’s true that the majority of the programs have that as a stipulation (approximately 63%), that still leaves quite a few without that criteria. Additionally, most programs use the HUD definition of a first-time homebuyer. According to HUD, this is someone who has not owned a home for the past three years. So, if you owned a home at one time but have been renting for the past three or more years, you are technically considered a first-time homebuyer again.
In order to know if a down payment assistance program is something you should investigate, let’s look at some of the pros and cons.
There are definitely some benefits to down payment assistance programs. The most obvious is that it can enable you to take out a smaller mortgage. Additionally, if you qualify for 20% or more in down payment funding, you’ll be able to avoid private mortgage insurance. And, qualifying for down payment assistance does not affect your ability to use other homeowner tax breaks, such as deducting your mortgage interest from your federal taxes.
As with anything in life, there are some cons. Most programs have many requirements for qualifying, so be prepared for a lot of paperwork. Additionally, there are often stipulations that you must live in the home for a certain amount of time, and you often are not allowed to rent the property. Finally, if you break any of the stipulations in your exact funding program, you could face steep penalties.
If you think a down payment assistance program could help you reach your home ownership goals, definitely investigate this option. But as always, be aware of all the pros and cons before moving forward.
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