Down Payment Assistance for Conventional Loans

How does down payment assistance for Conventional loans work? 

Down payment assistance (DPA) programs can help homebuyers, especially first-time buyers, cover the down payment and closing costs associated with a Conventional loan. These programs offer various types of assistance, including grants, forgivable loans, and low-interest loans, and may have income limits, credit score requirements, and occupancy restrictions. 

Down payments for Conventional loans

The minimum down payment for a Conventional loan is typically 3% of the home’s purchase price. However, making a down payment of under 20% will likely require also paying private mortgage insurance (PMI) on your loan. Additionally, higher down payments can often lead to more favorable terms and conditions on your loan.

Types of down payment assistance programs

There are various types of DPA programs that are available to homebuyers. These include programs at the national, state, and local levels. Some of the most common types of DPA programs include:

• Grants: This is money in the form of a gift that can be used for your down payment and/or closing costs that does not ever have to be repaid.
• Forgivable loans: This is a loan, usually in the form of a second mortgage, that only needs to be repaid under a certain set of conditions like if you move or sell the property.
• Loans: The most common type of DPA takes the form of a second mortgage that are paid off monthly along with your main mortgage. These loans often have no or very little interest on them.

Eligibility criteria for down payment assistance programs

Each DPA program will have its own qualifications. However, there are some general criteria to consider as you research them.

• Income Limits: Programs often have income caps, meaning that to qualify you must make below a certain amount, usually a percentage of the median income of your local area.
• First-Time Homebuyer Status: Some DPA programs are first-time homebuyer specific. This means that you must be a first-time homebuyer to qualify for them. However, you may still be considered a first-time homebuyer even if you have owned a home before, so be sure to look into the exact qualifications.
• Occupancy Requirements: You may need to live in the home as your primary residence.
• Credit Score: A higher credit score may increase your chances of approval.

How to apply for down payment assistance programs

Each DPA program will have its own application process based on the type of program it is and who is offering it. However, some of the common steps include:

• Research Programs: Identify programs that match your needs and eligibility. These can be national programs, state programs, programs offered by various non-profit organizations etc.

Programs are also available for various occupations and demographics like veterans, first-responders, disabled homebuyers, so make sure to consider as many factors as you can.

• Gather Documentation: Prepare proof of income, tax returns, and credit reports.
• Complete the Application: Submit the application with required documents.
• Attend Counseling: Many programs require homebuyer education or counseling, especially for first-time homebuyers.

Benefits of down payment assistance

• Reduced Financial Burden: Assistance can lower the down payment amount and also may help with closing costs depending on the program.
• Increased Homebuying Power: A lower down payment may help you afford a more expensive home.
• Avoiding PMI: Some programs help you reach the 20% down payment amount that will get rid of PMI on Conventional loans.
• Homebuyer Education: Many programs offer counseling and education that will give you more information on what goes into buying and owning a home.

Choosing the right down payment assistance program

With over 2,000 DPA programs across the nation, choosing the right one will take some time and research. Some general things to consider as you are making your choice are:

• Amount of Assistance: Each program will offer different amounts in different forms. Some programs offer grants, while others provide low-interest loans. Some are just a few thousand dollars, while others can get as high as $20-$40,000.
• Repayment Terms: Understand the repayment terms if the assistance is a loan.
• Program Requirements: Each program has its own unique eligibility criteria. Make sure you know what is needed to qualify and remember to check the ongoing requirements. Many programs have requirements around things like how long you must stay in the home.
• Reputation of the Program: Research the program’s reputation and read reviews to make sure that the program and organization are legitimate and safe for your to work with.

New American Funding (NAF) DPA

NAF’s Pathway program offers eligible borrowers up to $9,000* in assistance to use for their down payment or closing costs.

Final Steps

Once approved for a DPA program, work closely with your lender to complete the necessary paperwork and ensure the assistance is properly applied to your loan.

^{*Due to maximum seller concession rules, discount can be less than $9,000 in some cases where other concessions have been made to the consumer.}