There are many ways to get financial assistance to buy a home. Cities, states, and non-profits offer programs to help buyers based on need.
The average cost of renting shot up by about 20% last year, according to Realtor.com. Analysts predict another surge in rents this year.
If you’re ready to escape your landlord’s rising rents, consider buying a home in 2022.
Before you dismiss the idea because of the upfront cash you’d need, know that there are ways to purchase a house with little to no money down. In addition to using a no or low down payment loan, financial assistance to buy a home exists throughout the country.
Buying a home is much more achievable than most people realize. And with rents and interest rates on the rise, now is a great time to do it.
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A recent Fannie Mae poll showed that only 25% of Americans surveyed believe it’s a good time to buy a home. This view is understandable, given all the headlines about rising interest rates, inflation, and soaring home prices. But it’s incorrect.
It’s also concerning. Many Americans don’t realize that they are qualified to buy a home right now, likely with less money upfront than they’d expect. By delaying a home purchase, they miss out on building equity – and potentially on saving tens of thousands of dollars long-term.
Let us explain. Yes, interest rates are rising. But they are still near historic lows, which means you can lock in a low interest rate if you opt for a fixed-rate mortgage. Even if interest rates race upward during the next few years, you will pay the same low rate for the entire duration of the loan if you buy a home now.
And yes, inflation is a concern, and it will likely exacerbate the problem of affordable housing. The low interest rates and high demand for houses since 2020 drove up home values, making it difficult for many first-time homebuyers to compete. Experts predict that housing prices will see another double-digit rise this year.
But that’s another reason to buy now, if you can. If housing prices are going up, you don’t benefit from waiting. You can buy a home now at a low interest rate and start gaining equity, which is a building block of wealth and generational wealth.
Even if you have to buy a house that’s a little smaller or older than your dream home, it’s still likely a better decision than renting. It is more expensive to rent than to own in nearly 60% of counties in the U.S. Rental prices can also increase, whereas with a fixed-rate mortgage, you can stabilize your monthly housing payment. And you’re building equity.
Finally, waiting to buy could put homeownership out of reach. Interest rates affect your debt-to-income ratio (DTI)*, and the higher home prices go, the less you will be able to afford. A home that is within your budget today could be out of reach only months from now.
And remember what we said about saving tens of thousands of dollars? If you wait to buy until interest rates have risen further, you could pay that much more over the life of your loan than if you had bought now.
Rumors of a housing crash are largely unfounded. Many experts expect home prices to continue rising, and 2022 is not 2008. We are in a very different regulatory and housing environment than we were then, so history is not repeating itself.
So again, if you are ready to buy a home, do not wait to get started – especially if the only thing holding you back is the upfront expense.
There are many types of financial assistance to buy a home.
Before you look into assistance programs, it helps to know that there are many no and low down payment loans – especially for first-time homebuyers.
- FHA loans: 3.5% down payment with 580 or higher credit score
- VA loans: 0% down payment for eligible military borrowers who have full entitlement benefit available
- USDA loans: 0% down payment for low- to moderate-income borrowers who are buying homes in qualifying rural and suburban areas
- Conventional 97: 3% down payment with 620 or higher credit score
State and local governments, along with nonprofit organizations, throughout the U.S. offer down payment assistance and closing cost assistance programs.
“Many states offer down payment assistance programs that, if eligible, allow you to buy a home with 0% out of your pocket,” says Garett Seney, a mortgage advisor in South Boston with Home.com’s parent company, Fairway Independent Mortgage Corporation. “Connecting with a knowledgeable loan officer will benefit you to find out what programs you qualify for.”
The grants and loans you can get through these programs vary widely by location. Some offer money through forgivable loans, “silent second” mortgages that you only repay when you sell or refinance the home, or grants that require no repayment at all.
Each program has its own eligibility requirements, including for income, geography, credit score, and mandatory homebuyer counseling. The minimum credit score requirement for down payment assistance in Florida is 640, for instance, according to Key Largo-based Fairway senior loan officer Phil Ganz.
Your mortgage lender or real estate agent may be able to refer you to down payment assistance programs in your area. Additionally, you can contact the local office of the U.S. Department of Housing and Urban Development (HUD), and speak with a counselor about the programs available where you live.
Freddie Mac BorrowSmartSM program
Low- and moderate-income homebuyers throughout the U.S. can apply for Freddie Mac’s BorrowSmartSM program which could provide up to $2,500 toward your down payment or closing costs.
This program works in combination Freddie Mac’s Conventional 97 HomeOne and Home Possible mortgages, which allow for 3% down payments. The “97” refers to the loan-to-value ratio (LTV): you’re borrowing 97% of the home’s purchase price and putting 3% down.
The BorrowSmart program will likely not cover all of your down payment or closing costs, but you can combine it with gift funds or other forms of assistance.
Several nonprofit organizations offer special loan programs for first responders, firefighters, law enforcement officers, and public school teachers.
The Good Neighbor Next Door program, for example, offers homes at a 50% discount to teachers, law enforcement officers, and EMTs. Only certain properties qualify for this discount, but saving 50% can be a game-changer for purchasing a home.
Homes for Heroes is another program that helps public servants save money through a series of discounts that average $2,400 per homebuyer, according to the agency’s website.
While there’s no single, national program to help homebuyers who have disabilities, you may be able to find local programs in your area that can help.
You may also come across disability-specific assistance programs. The Travis Roy Foundation, for example, offers grants to homebuyers who experienced a sudden spinal cord injury and need to buy a different home.
Or, if you can afford to buy a home but can’t afford the cost of mobility renovations or other changes to make the property more accessible, a variety of grant programs offer financial assistance for these purposes.
Many loan programs allow your friends or family members to give you money for your down payment or closing costs. If someone in your life wants to help you on your homeownership journey, this can be a great way to do it.
If you will receive gift funds toward your down payment and closing costs, let your lender know as soon as possible. They will tell you the specific procedures you and the donor will need to follow, based on the guidelines of the mortgage program you’re using.
You will need to provide a gift letter to your lender, signed by you and the donor, stating that the funds are a gift and will not need to be repaid.
It’s also important to have a paper trail. You cannot simply bring cash to your closing, or count cash as the gift. The funds must be clearly documented, whether through a check deposit or bank transfer. Your lender will need to see a record of the money transferring from the donor’s account to yours.
If you’re buying a home from a parent or another close friend or relative, a gift of equity could take care of your loan’s down payment.
With a gift of equity, the seller accepts less than the fair market value for the home. For example, the home is worth $250,000 but the homeowner agrees to sell it to you for $225,000.
The $25,000 difference gets credited to your down payment, so you don’t need cash to put down. You will need to pay closing costs, but you can use gift funds or closing cost assistance toward those. Some loan programs also allow you to finance the closing costs into the loan.
Financial assistance to buy a home FAQs
USDA and VA loans offer 100% financing for eligible homebuyers, though you will likely need money for closing costs. You can use gift funds or down payment assistance to cover all or part of your down payment and closing costs on USDA, VA, FHA, and conventional loans.
Yes. There are homebuyer programs throughout the country that offer down payment and closing cost assistance in the form of grants, forgivable loans, and “silent second” mortgages that only need to be repaid when you sell or refinance the home. There are also homebuyer assistance programs for first responders, EMTs, teachers, and similar professions.
To qualify for an FHA loan with 3.5% down, you’ll need a credit score of 580 or higher and you’ll have to meet all other FHA borrower guidelines as well. You can qualify for an FHA loan with a credit score of 500-579 if you can put down 10% or more.
Financial assistance to buy a home can help you realize your dreams of homeownership, save money, and start building wealth for yourself (rather than your landlord). So, why wait? Talk to a lender and get preapproved so you can make 2022 the year you purchase a new home.
Eligibility subject to program stipulations, qualifying factors, applicable income and debt-to-income (DTI) restrictions, and property limits. Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency.
A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits.
USDA Guaranteed Rural Housing loans subject to USDA-specific requirements and applicable state income and property limits.
*Debt-to-income (DTI) ratio is monthly debt/expenses divided by gross monthly income.