3 Ways to Get Help With Your Home Down Payment

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Three programs that assist with down payment and closing costs when buying a home.

Saving for a home down payment is a massive undertaking.  Not only do you have to save up 10-20% of the home’s value, you also have to save for closing costs, and make sure you have enough left over in savings to prove to the bank you’re not going to end up destitute after you sign the paperwork.  While I’m not a big fan of subprime lending (who is anymore?) or taking out a loan you can’t afford (you’ll never build equity!) I am all about programs that can help people reach their goals faster and responsibly.  Especially with the state of renting threatening to erode another rung in the ladder to the American Dream.

Here are four programs that can help with your home down payment or closing costs.  Remember to use them not to buy something you can’t afford, but to help you mitigate costs that are prohibiting  you from building wealth.

VA Loans

VA loans are loans for those who are currently serving or have served in the military.  These loans allow you to get into a home with 0% down and no PMI (private mortgage insurance.)  I’m all about programs that help out veterans and soldiers, but I do want to throw a word of caution out there with this one.  When you are buying with 0% down, your mortgage is going to be larger.  You’re also starting with zero equity.  It’s imperative to be 100% sure you can afford your monthly payments.  If you can, a VA loan can be a good vehicle to get you into a house.  The house must meet certain criteria, so know that you likely won’t be purchasing a foreclosure or something that needs a lot of fixing up before it is usable.

First-Time Home Buyer Programs

These have slowed and decreased in benefit level since the Recession, but they do still exist.  Most states provide a first-time home buyer program through the state housing financing association, and some counties and municipalities provide additional programs.  These hyper-local programs are typically for homes in areas they’re trying to revitalize, so you must buy withing certain neighborhoods to get the assistance.  These programs offer a range of benefits which will vary from state to state, county to county, and city to city.  They can include grant money for down payment assistance, closing cost assistance, a second mortgage with 0% interest that closes the gap between how much you have saved and how much you need for either of these two costs, or simply lower-interest mortgages.

These programs aren’t unique to the US, and it’s interesting to see how they function around the globe.  For instance, in Australia, the folks at Homestart are the leading first home builders in Perth.  There, they have grants up to $10,000 for first-time home owners, and you can actually use the money to build a new home with no deposit out of your own pocket.

FHA Loans

FHA loans are run through the Federal Housing Administration.  With these loans, you only need 3.5% as a down payment, and you’re actually allowed to receive 100% of the funds as a gift from a relative.  The downsides to this are much akin to those of the VA Loan:  you’re starting with less equity, and the size of your loan will be larger.  On top of that, FHA loans require that you pay PMI, and it’s more expensive on these loans than on traditional loans.

 

Your best bet is to save up enough to pay for everything yourself, but if you’re in a situation where rent is keeping you from being able to save up for the down payment, but you could afford monthly mortgage payments once the rent was gone, it’s worth at least looking into these programs and running your own numbers to see how it would pan out for you in the long-term.

 

*This post is in collaboration with Homestart.  All content is created by and the opinion of Femme Frugality.*

 

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16 thoughts on “3 Ways to Get Help With Your Home Down Payment

  1. ModerateMuse

    We bought our house with a VA loan, which we thought was great at first, but we really struggled for a while. Now we owe more than it’s worth, and we have to rent it out just to cover our bills. People definitely need to have done their homework before they jump into home-ownership with a VA loan.

    Reply
    1. Femme @ femmefrugality

      Yeah, that’s the danger of a VA loan, and it’s a huge one. While it’s great that it allows you to get your foot in the door, there’s a serious risk of ending up upside down. I’m sorry you guys had to go through that.

      Reply
  2. Hannah

    Even if you aren’t a first time home buyer- definitely look into those programs. Certain neighborhoods (including mine) are considered “revitalization areas” and the grants are based only on income rather than income and home ownership experience. We didn’t qualify, but we tried.

    Reply
  3. kay ~ the barefoot minimalist

    Great tips, Femme! We bought our last home using owner financing. It was pretty cool. If we hadn’t sold it, it would have been paid off in 7 years’ time. I highly recommend this option. We still made out well when we sold it after owning it for only 3 1/2 years.

    Reply
  4. Bryan Cockfield

    These are great tips! You can, however, get a conventional loan and only put 5% down in some situations. Granted, you’ll have to have private mortgage insurance until you get to 20%, but it’s a good way to get into the house you want without having to save up such a huge chunk of money first. It actually might be a little better than a FHA loan because even though you have to come up with 1.5% more, the FHA loan doesn’t allow you to eliminate the PMI without refinancing (as I understand it… I’m no expert, just speaking from experience!)

    Reply
    1. femmefrugality Post author

      I think you’re right. And the PMI is cheaper. We need an expert to chime in on that one!

      Reply
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  6. Kythesis

    I used the USDA home loan program, It’s only available if you are looking to live in rural areas, but you may be surprised what is considered rural. Mine was 0% down(I actually got a check at closing!), but I think you’re better off putting at least 10% down. I think it’s a good program overall.

    Even though I purchased a very modest low cost home, lately I’ve been realizing more and more that I was much better off, financially at least, renting. Even though I’m a very DIY type of person around the house. Good thing I make OK money.

    Reply

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