Down Payment Grants are designed to help first time home buyers come up with the money needed for a down payment. Even if you have owned a home in the past, if you haven't owned a home in at least 3 years you still in most cases qualify as a first time home buyer.
To set the record straight, there are two types of down payment programs out there. One is a grant and the other is a down payment assistance program. They are different and we're going to look at each one in this article.
Down Payment Grants - First Time Home Buyer Grants
Down payment grant, what is it? The down payment grant is made possible by Federal, State and Local government home buyer assistance programs. If you go to HUD.gov, you will be able to find a list of home buyer assistance authorities for each state in the U.S. You can also call your local county government and ask for your county's home buyer assistance grant program. If your county has one, you'll get patched through to someone who can help you.
If you qualify for a grant program, you will receive some cash from whatever government entity is providing the grant to be used for your down payment and closing costs. There are many different qualifications that you must meet depending on where you are getting your grant. These grants might not cover all the money you need for down payment and closing costs. You may have to still have some of your own money to buy the home.
One of the conditions that you have to meet to get the grant is that you must be able to qualify for a mortgage. Another common stipulation of the grant programs nationwide is that you either have to pay back the grant if you sell you home no matter how long you own it, on some cases you will not have to pay back the grant if you stay in the home for at least 5 years.
Down Payment Assistance Programs
These programs are a little different from the down payment grant progams. These programs are typically designed to provide you with down payment and closing cost assistance in some cases as much as 10% of the sales price that never has to be paid back. You still have to qualify for the mortgage. Generally speaking, only the FHA Home Mortgage program allows for the use of this program.
FHA Mortgages allows for a home buyer to receive a gift for down payment and closing costs from a relative or a from a non profit agency. The companies who offer down payment assistance programs are all non-profit companies. Read more about a trusted and established non-profit down payment assistance company is AmeriDream Inc.
At settlement these companies provide money to you in the form of a gift for your down payment. In turn, the seller of the home gives the non- profit the exact amount that you were given by the non-profit company plus a little extra for the administrative costs that the non-profit incurs. As previously stated, this money does not have to be paid back no matter when you sell your home.
How Do I Know Which Program To Use?
In some cases it doesn't really matter which program you use. But here are some suggestions of when you would want or have to use one or the other. There are three types of real estate markets: seller's market, a "normal" market, and a buyer's market. In a seller's market, using a down payment assistance program where you need seller assistance is going to be difficult to get. In this case you will want to go for a grant. Sellers are not going to have to help out a buyer to sell their home. This is the case for most of the U.S. in the 2005 real estate market.
In the case of a Buyer's market, you may want to opt for the down payment assistance program. These programs don't have the conditions on them that the grants do, and again the money does not have to be paid back. But for this program to work, you do have to have a cooperative seller. In a buyer's market, sellers are more willing to provide down payment and closing cost assistance because they need all the advantage to sell their home.
No matter which program you chose, they are very good programs. You just need to do your homework to see which one works best for your situation. Your first job if you are looking to use either of these programs is to contant a local mortgage loan officer to see if you prequalify, and for what type of loan. Once you know that you can qualify for an FHA loan, then you'll be able to start looking at what down payment program to use: down payment assistance or down payment grant.
Article by Dale Stouffer, Mortgage Broker. Dale has been in the mortgage business since 1996. He has helped 1000's of home buyers get the right loan for their needs.
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