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- For more information about affordable loan programs and new home loans including Home Equity and Refinance call
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 Personal Stories |
James worked with a counseling agency to find a down payment assistance loan.
Read his story. | | | |
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| Preparing for Home Ownership |
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Down Payment and Closing Assistance Programs
Closing Costs and FeesMost loan programs require the new homebuyer to bring money to the closing (or settlement) to cover both the down payment and closing costs. Closing costs include charges for the appraisal, credit report, title search and insurance premiums. There may also be lender, attorney and recording fees, escrow fees and other minor “third party” fees (courier, etc.). In general, the average amount for closing costs ranges from 2-4% ($2,000-$4,000 for a $100,000 purchase price) of the purchase price of the home. This varies according to area and lender, and some of the fees are negotiable. Although sellers also have their own costs to pay, in some cases, a seller may be willing to pay some of the buyer’s closing costs. A detailed explanation of all closing costs is provided in Steps for Buying a Home under Closing the Deal.
Different Types of AssistanceIn addition to affordable loan products offered by traditional lenders, there are also numerous homebuyer assistance programs that can help with these costs. The programs vary greatly from one community to the next, but your home loan consultant should have more information on what is available in your city, county and state. Different types of assistance programs include:
- Down Payment and Closing Assistance: city, county and state housing agencies and nonprofit housing organizations often offer programs where funds are provided for down payment and/or closing costs with varying arrangements for repayment. In some cases, no repayment is required, for example, if you agree to remain in the property for a set number of years.
- Individual Development Accounts (IDAs): these are special accounts set up by an organization such as a coalition of local churches, an employer in the area, or some other entity interested in assisting a future homeowner. The supporting party agrees to provide a certain amount of money depending on how much is contributed by the future homebuyer. For example, the person deposits $20 a month and the supporter adds an additional $40 (this would be a two times match). A four times match would mean an $80 contribution from the supporter.
- Employer-Assisted Housing: an employer can contribute to an IDA account or, in some cases, may offer a set amount of cash to be applied to down payment/closing costs as an incentive for the company’s valued workers to purchase a home and stay in the area.
- Mortgage Credit Certificates (MCC): city, county or state housing agencies may issue Mortgage Credit Certificates to first-time homebuyers. The Credit permits the borrower to apply a specific percentage of the annual interest paid on their home loan as a credit against tax liability. The borrower pays less tax, which frees up more funds to qualify for a home loan. Check with your lender to see if they offer home loans that can be used with MCC’s.
- Grants: nonprofit groups sometimes provide grants to help a borrower with their down payment and closing costs. Generally, if the nonprofit received the funding from a source other than the seller of the property, there is no limit on the amount they can grant to the borrower. If the funding source is the seller of the subject property, there are numerous limitations and requirements. Check with nonprofits in your area to see if they offer home ownership grants, but be sure to work with a lender who knows how to process the grant.
- HUD Housing Choice Voucher Program: the HUD Housing Choice Voucher Program (formerly known as Section 8) now allows a Public Housing Agency (PHA) to allocate a portion of the funds they receive to be used for the Home Ownership Voucher Program. Qualification for this program varies from one PHA to another. Check with your local housing organization to see if you can qualify for this program.
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