For people who are tormented by the thought of a down payment, worry no more. Help is here — enter, DPA.
There are many options if you want to save some cash on a down payment for a house. The first option is to qualify for a low down payment mortgage or 100 percent financing.
This first option, however, may not be for everyone. It can be hard to qualify for this kind of mortgage, given that the requirements are very rigid. It is designed this way because having too little down payment or none at all can be a huge risk to the lenders.
Now, if you think that you just can’t qualify for this kind of mortgage, you can try other means to come up with a down payment.
Down Payment Assistance (DPA)
The next best thing you can try is to qualify for down payment assistance. You still need to have good credit and you have to have proper documentation of your income to qualify for one. The good thing about it is the qualifications aren’t as tough as that of a no down payment mortgage loan.
From grants to interest-free loans, there a variety of down payment assistance programs. It is a must that you understand the most common types of DPA programs.
You have to know how each program works and how it can help you buy the home you want. Moreover, you have to be alert because not all assistance is safe and legit. What looks like an easy way to afford a down payment may lead you to trouble.
Let’s take a look at these common DPA options and know which ones are safe and which ones you must avoid at all cost.
It is clear what this kind of down payment assistance is. It simply means that there are “no strings attached.”
The amount of money you will receive from this program does not have to be repaid.
Some down payment assistance grants can also be used to cover the closing costs. Grants are provided by federal institutions and nonprofit bodies’ and are usually intended for deserving homebuyers belonging to the low- or moderate-income brackets. However, there are still grants available to individuals earning a little more than the area’s median income.
A good example of this is the NHF Down Payment Assistance. It is a multi-state program that provides down payment and/or closing cost assistance grant equal up to 5 percent of the loan amount. It isn’t limited to just first-time buyers and it never has to be repaid.
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Another type is a Down Payment Assistance Loan. It can be an interest-free second mortgage or a low-interest loan.
This option lets you borrow a certain amount of money to pay for your mortgage down payment. It can be structured as a second mortgage. This means that the DPA loan only becomes payable if your first mortgage is completely paid off or when the property is sold.
It is called a ‘silent’ second mortgage because it allows you to deal with your primary mortgage first, allowing you to manage your finances a lot easier.
Like DPA grants, they are offered by government institutions and nonprofit housing agencies. Although a DPA loan can be structured as a silent second mortgage, this assistance is totally legit.
One example of a DPA loan is the SONYMA DPAL (State of New York Down Payment Assistance Loan). This program allows homebuyers to use this assistance in combination with a SONYMA financing.
The DPAL program has no interest rate and no monthly payments. Another good feature is that the loan can be forgiven after 10 years provided that the borrower stays in the property as their primary home and keeps the SONYMA financing.
Like the program mentioned, some DPA loans have a feature where the borrowed money can be forgiven after a certain period of time. However, not every single one has this feature.
Silent Second Mortgages
Now, there are those silent second mortgages that are just dangerous. This is what we were warning you about earlier, so pay close attention.
This silent second mortgage is considered ‘silent’ because you will have to intentionally keep it a secret from your first lender in order to use it. This is a fraudulent practice.
In general, lenders aren’t inclined to this kind of second mortgage loans because it can be an unsecured debt. Aside from that, this side loan can negatively affect your debt-to-income ratio, making you unqualified for a mortgage. This is why your first lender will have to ask you to detail the sources of your funds, including the down payment.
You may try to hide the side loan and succeed, but once you get caught you can be charged for mortgage fraud. The jail time alone isn’t worth all the trouble so, by any means, avoid this kind of silent second mortgage.
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There are thousands of down payment assistance to help you in homebuying. They can be available nationwide, state-wide or locally. Whatever program you choose to apply for, just make sure it is legal and safe to use. You can talk to your lender about it or you can also ask your local housing agency to verify any information.
Start your search for DPA programs through DPAsearch.com. Be able to compare DPA program offers and terms with just a few clicks. You can also talk to lenders who have more knowledge about certain DPA products. Look for safe down payment assistance programs to help you jumpstart to homeownership.