Down Payment Assistance: Solutions to Help Borrowers with Closing Funds

Your borrowers, especially first-time homebuyers, may not realize that with MI they can put less than 20% down when they purchase a home, or that they may be able to receive help on their down payment through down payment assistance (DPA) programs. At Enact, we’ve got resources and training options to help you inform and educate your borrowers on what their options are.

Let’s discuss what down payment assistance is and how you can help your borrowers find solutions to the obstacles they may face trying to save for a down payment or cover closing costs!

What is down payment assistance?

When a borrower is on the hunt for a house, they need to be mindful of how much of a down payment they can afford, as well as the potential closing costs associated with their purchase. This is especially important early in the homebuying process as they focus on their budget. However, they may not have to face those costs alone with down payment assistance programs that may be used to help them save money and purchase a home sooner.

Most down payment offerings are administered through local level through state, county and city government agencies. These funds come in the form of a loan, grant or matched savings, though some federal programs have offerings too. Program eligibility is typically based upon a specific set of qualifications and requirements that the homebuyer must meet. These qualifications vary by program.

Here is a list of some standard requirements for borrowers to qualify for down payment assistance. Homebuyers should be:

• First-time homebuyer
• Low- to moderate-income
• Buying a primary residence
• Buying within local purchase price limits
• Using an approved mortgage program
• Working with an approved mortgage lender

This list is not exhaustive but is typical for many down payment assistance programs. Your borrowers should reach out to you to clarify these requirements and you can help them understand what programs might be best for them. First-time homebuyers, in particular, will need extra care to help them achieve their homebuying goals.

Types of down payment assistance

Bankrate has a list of the types of down payment assistance that are available to homeowners, so long as they qualify for them. Check out their list below:

• Grants:
  • A type of housing assistance that provides a one-time cash sum, often in the form of a no-interest second loan, to cover all or part of a down payment or closing costs. The funds don’t have to be repaid.
• Low-interest loans:
  • These are similar to grants, but they must be repaid, usually over the course of a few years. Since you’ll be repaying this loan in addition to your regular mortgage, you’ll have a higher monthly payment.
• Deferred-payment loans:
  • These types of loans generally don’t charge interest, but usually need to be repaid in full when you sell your home or refinance your mortgage. Many times, these are zero-interest loans, which means you are only responsible for repaying the amount you borrowed initially.
• Forgivable loans:
  • These are similar to other kinds of assistance, but you might never have to pay them off. Generally, forgivable loan debt is erased after a certain period of time so long as you still own the home and are up-to-date on your mortgage payments.
• Individual Development Accounts (IDAs):
  • Also called a matched-savings account, with an IDA, the account holder’s contributions are matched by either private or public money. To get this kind of account, there are typically income caps and employment requirements, and participants usually need to complete free financial literacy training.

With the many available types of down payment assistance, you can certainly customize your borrowers’ experience and provide them with important information to help them be successful. Homebuying can be stressful—provide resources and assistance to your borrowers wherever possible!

Solutions for borrowers

Your borrowers rely on you to be informed and communicate with them on a regular basis. Throughout their homebuying journey, you should provide them with the resources and tools to reach the finish line and become homeowners. First-time and all hopeful homeowners need all the help they can get in today’s challenging mortgage marketplace.

To help your borrowers find down payment assistance programs, with many being at the local or state level, check out the following types of programs below:

• State Housing Finance Agencies (HFAs)
  • HFAs largely exist to help first-time homebuyers. Many HFAs offer programs that help increase affordability. They provide down payment assistance to borrowers through grants, forgivable loans or secondary financing. These programs provide some flexibility for borrowers based on their state’s offerings.
• Department of Housing and Urban Development (HUD)
  • You can direct your borrowers to HUD’s website to see the local down payment assistance programs available by state. Notify them that every state has HUD-approved counselors to explain the homebuying process and help find them financial assistance.
• City and county government programs
  • Many counties and cities offer DPA options for first-time homebuyers. Have your borrowers ask you for more details about local DPA programs in their region.

In today’s market, down payment assistance can make all the difference. To learn more about down payment assistance options and solutions to help with closing costs, check out these resources! Never underestimate the power that knowledge can bring you and your business.

How we can help

We offer training resources to help you gain new skills and tools to better educate and work with borrowers. Plus, we offer FTHB Resources to help you supplement many of the topics we cover in our training courses and beyond. After all, to help your borrowers navigate the market and the homebuying process, education is key!

Be sure to make the most of your MI experience too. If you need some extra insight, you can always contact your Enact Sales Rep for more info. They’ll be happy to help you meet your business needs, answer questions, and point you in the right direction.

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