Many people wait longer than necessary before purchasing a house because they think they need a large down payment. But anyone who otherwise qualifies for a mortgage can buy a home for as little as 3 percent down plus closing costs – and zero down if you’re a veteran.
“Everybody thinks it’s 20 percent, but people will be shocked to know it’s as little as 3 percent,” says Ray Rodriguez, regional mortgage sales manager at TD Bank in New York.
If you are eligible, you may even be able to purchase a home with a grant to cover your down payment and closing costs. “It depends on where you live and where you’re looking to buy,” Rodriguez says.
According to Rob Chrane, CEO of DownPaymentResource.com in Atlanta, at least 2,400 programs nationwide offer assistance to prospective homebuyers. While many are aimed at people who earn less than the median income – which varies by locality – some are open to moderate-income homebuyers, with a few programs helping those who earn up to 140 percent of the median income.
“About 70 percent of these programs are some form of down payment or closing cost help,” Chrane says. But some assist in other aspects of homeownership. The Mortgage Credit Certificate program, for example, provides federal tax credits for interest paid on a mortgage. There also are programs that help existing homeowners with repairs.
Down Payment Resource found that the average amount of assistance provided by a program is $10,000. “Whatever the amount is, it’s not peanuts,” Chrane says. “It’s something that can concretely help people.”
The challenge is finding out what programs exist in your community and which ones you might qualify for.
The catch is you typically can’t expect your real estate agent or lender to tell you, since many of them don’t know about all the programs, either. The programs are administered by cities, counties, housing finance agencies, nonprofits, lenders and other groups. In some high-cost areas, employers may offer closing cost assistance. Programs come and go, and qualifications change periodically as well.
That makes it smart to do your research before beginning your housing search.
“There are a lot of down payment assistance programs,” says Marietta Rodriguez, vice president of national homeownership programs and lending for NeighborWorks America, a national nonprofit focused on community development and homeownership, and a U.S. News contributor. “It’s very difficult for a homebuyer to locate these and curate them.”
She recommends consulting a local HUD-approved counseling agency. “It’s their job to pull together all those resources,” she says.
Cities and counties may list some information on websites, but that information is often incomplete, making it hard to know who qualifies for assistance.
Down Payment Resource also curates assistance information, providing links to the sponsoring agencies, and is beginning to contract with multiple listing services to ensure this information is available to agents. “They’re always surprised when we show them all of the programs that are available in their marketplace,” Chrane says.
And don’t assume that you won’t qualify because you’re not at poverty level or have already owned a home. “[The program rules are] all over the place,” Marietta Rodriguez says. “It depends on the market, and your housing counselor knows that market.”
Chrane estimates that 60 to 65 percent of the programs are for first-time homebuyers, but most programs define a “first-time” buyer as someone who has not owned a home in the previous three years.
“There are millions of boomerang buyers out there who went through foreclosures and short sales,” Chrane says. Three years gives these potential homeowners time to rebuild their credit, and then when they’re ready to buy again they are eligible for first-time homebuyer programs.
Nearly all the programs require buyers to live in the homes as opposed to rent them out, and some will stipulate that you must pay back the aid if you don’t stay in the house for a certain number of years. Some set a maximum home price, as well as income limits for buyers. Other programs are only available in specific neighborhoods.
Down Payment Resource partnered with with the real estate information company RealtyTrac on a 2015 study that found in counties with populations of 100,000 or more, 87 percent of the residential properties would be eligible for one or more programs. “Any home within a certain price point should be eligible for something,” Chrane says.
Educators, police, firefighters, health care workers and members of the military may qualify for additional programs or greater aid amounts. “There are communities where it’s hard for them to live where they serve,” Chrane says.
Many programs require recipients to complete a homebuyer education course, which can be helpful to any first-time homebuyers. “It better prepares somebody for what they’re getting into,” Ray Rodriguez says.
Even those who don’t qualify for down payment assistance can purchase a home with as little as 3 percent down and zero for veterans.
Last year, Fannie Mae rolled out a new program, HomeReady, that is available to both first-time and repeat buyers with as little as 3 percent down, at lower cost than a Federal Housing Administration mortgage. The program allows for co-borrowers who won’t live in the house (such as parents) and takes into consideration income from people who will live in the house but not be on the mortgage. Plus, the down payment can come from seller credits or a gift. The income limit to qualify is usually the adjusted median income, but in some low-income census tracts there is no income limit.
[See: The Best Apps for House Hunting.]
Banks may also offer portfolio loans with special terms for first-time homebuyers. Not all lenders offer every program, so it’s important to shop around if you’re looking for a mortgage with a low down payment.
“I think it’s important to do your research and talk to trusted mortgage professionals,” Ray Rodriguez says. “Look at all your options before you start looking at homes.”