Down Payment Assistance Options for First Time Home Buyers

First time home buyers typically have a harder time affording a down payment than a mortgage payment. While their incomes may permit them to make the monthly payment requirement, the huge sum of cash needed up front is harder to come by. Most repeat home buyers use funds from a home sale in order to provide their next down payment. Without this option, first time home buyers need to consider alternative means to get assistance to make the big payment.

How much Down Payment Is Needed?

Remember: the more you put down, the lower your mortgage limit. This leads to lower interest rates and lower monthly payments. Typically, lenders would like to receive at least 10% down on a loan. To reduce other costs, however, a 20% down payment is preferred. This is particularly true if you are seeking an FHA guaranty on your mortgage. Your mortgage insurance requirement will be lower with a 20% down payment. 

The FHA does offer incentives for low down payment loans as negotiated with particular lenders or builders. Borrowers will find they need only 3.5 - 5% down on a home in order to secure a mortgage through the FHA if they qualify for the First Time Home Buyer program. 

What Is a First Time Home Buyer Grant?

One option to consider in order to secure a down payment is to look for a first time home buyer grant. These grants are available through federal and local organizations alike. The grants are typically given based on the type of home you are buying and not your financial profile. For example, they are targeted toward individuals willing to purchase a home in a transitional area. 

The main benefit of a first time home buyer grant is it never needs to be repaid. The money is similar to a scholarship in this way. The loan amount is generally small, perhaps 3 - 5% of your mortgage, but can help cover the cost of a down payment. However, you will need to submit a lengthy application for any grant program. The FHA first time home buyer grant program also requires you to take a class on how to manage the finances of home ownership. 

Are there Other Options?

Not many people will qualify for the FHA first time home buyer grant option or the FHA first time home buyer low down payment program. If you do not qualify, then you will need to come up with the cash on your own. Of course, saving your money is the best way to provide a large down payment. 

You may also consider taking out another loan, a high risk personal loan, in order to cover the down payment on your property. This loan will need to be paid simultaneously to your mortgage. This option is truly best for people with a very high income but a shortage of immediate cash. Cash loans have high interest rates, high monthly payments and need to be paid off very quickly. The first year living in your home you will discover funds are tight if you elect the double-loan option.