Down payment assistance programs (DPA or DPAP) are a form of gift funds you can utilize to cover the necessary borrower percentage of investment lenders require. These funds are a gift from a non-profit organization dedicated to helping people realize the dream of home ownership, and as a gift they do not need to be paid back.
Here is how, in general, all DPAP's work:
1. Locate a home you would like to buy and is within a price range you can afford. (You may want to get a mortgage broker to pre-qualify you so you will know how much home you can afford. Before you can apply for the DPA grant you will need the lender to actually pre-approve you for a mortgage.
2. Discuss the DPAP with the seller. What basically happens is, instead of the seller lowering his sales price, he agrees to make a tax-deductible “donation" to the non-profit agency and the agency then gives you a grant. Seller agrees to do this because you want to buy and they want to sell and the market in the area has been slow and this way the seller can get a better price and get the deal done. If they were to drop their price for you, you would still have to come up with a minimum of 3% of the sales price as a down payment. If, instead, the seller does not lower the sales price but donates 3% of the price (or more) to the DPA organization, that seller now has a nice charitable tax deduction to use on their next income tax return, possibly helping to offset capital gains taxes due from the profit income from this sale! It can be a win-win situation for everyone.
Caution: do not overpay for the house to get a seller to participate in this DPAP. The house must still appraise for the sales price or better to satisfy loan-to-value requirements of your lender.
There are a number of Down Payment Assistance Programs available nationally, the two most well-known are American Dream and Nehemiah. Do a Google search. Additionally, many local, county and state governments have government-backed first-time homebuyer assistance programs you may qualify for. A good starting point for this research would be the U. S. Housing & Urban Development (HUD) website, as well as your state and county government websites. Most government-sponsored programs may have income limitations, neighborhood parameters or only help a first-time home buyer, because public tax dollar funds are being utilized and those dollars have to benefit the community at large.
Both private and public DPAP's usually require completion of a course or class for homebuyers that educates you in the basics of the homebuying and budgeting and mortgage - management processes to lessen the likelihood of borrowers getting into potential default.
It is well worth your time to talk to an experienced Mortgage Broker familiar with the various Down Payment Assistance Programs that may be available to you.
James Hussher is a Certified Mortgage Planner and licensed in all 50 states. Please visit James at http://ezmortgages123.com for all of your residential and commercial mortgage needs. Apply online, check current offered rates and loan programs and more! Many free articles and educational resources may be accessed at http://swifthussherrealestate.com which James also runs!