Cute blue cottage style house.

Get In The Know In The New Year: 2022 Down Payment Assistance

Carla Ayers5 minute-read
February 04, 2022

Share:

With the cost of living growing faster than the average wage increase, saving for a down payment has become progressively more difficult for the average American. As a real estate professional, you can’t make your clients save every extra penny for their down payment. But you can provide guidance and resources that will help them reach their home ownership goals.

Down payment assistance (DPA) is an incredible tool that provides funds in the form of a grant or loan to help home buyers make their purchase. Follow along to learn more about DPA programs and how you can help your client help themselves with down payment assistance.

What Is Down Payment Assistance And What Does It Cover?

Depending on the down payment assistance program, eligible applicants can receive a grant or a low - to no - interest loan to cover down payment and closing costs.

Each DPA provider will have its own guidelines outlining how their down payment assistance funds can be used. Many DPA programs allow funds to be used for down payment and closing costs of a home purchase. It’s important to encourage your client to discuss these terms with their banker so they’re aware.

A down payment is the sum of money a home buyer pays upfront in a real estate transaction. Down payment requirements vary but are typically 3% – 20% of the final purchase price of the home.

Closing costs are the fees paid to the lender and other third parties for administering and processing the mortgage loan.

Below are examples of common closing costs:

  • Government fees and taxes to transfer and record the property sale
  • Appraisal fee
  • Title company fees and title insurance
  • Real estate commissions
  • Attorney fees

Types Of Down Payment Assistance

Most down payment assistance programs are offered in the form of a grant or a loan.

Grants: True grants do not require repayment. It’s important to note, there are programs with “grant” in the title, but they have some repayment requirements attached.

Second lien: Terms of the second lien will vary by program. Some programs may require immediate or deferred payments. There are also programs where the lien may be forgiven after a set period of time.

Most down payment assistance programs are offered locally by state, county, or city government. Nonprofit organizations and tribal entities have down payment programs as well. It’s important to keep in mind that Rocket Mortgage currently does not accept State HFA programs.

Many DPA programs are designed for first-time home buyers. A first-time home buyer is often defined as someone who hasn’t purchased a home in the last 3 years. So, if you’re working with a client who has purchased a home in the past, they may still be eligible for down payment assistance. Those homebuyers who own a rental or investment property will not likely qualify for down payment assistance.

How Does Down Payment Assistance Work?

Most programs will require an application so they can determine an applicant’s eligibility for the program. The applicant’s household income, credit history and credit score will likely be considered. In addition to an application, some programs may require the applicant to attend training or workshops to learn about the mortgage process and maintaining personal finances while owning a home.

How much assistance an applicant receives is dependent on the program. Some DPA programs offer a percentage based on the home’s sale price, while others cap their down payment and closing cost assistance at a certain dollar amount.

Once approved for down payment assistance, the applicant will need to find a participating lender that accepts down payment assistance in the form of grants and second lien down payment assistance.

The applicant will need to qualify for both the DPA program and the mortgage home loan. Rocket Mortgage® accepts down payment assistance from third-party providers.

How To Find Down Payment Assistance Programs

There are over 2,000 down payment assistance programs nationwide. To become familiar with the resources in your area you can start by researching the U.S. Department of Housing and Urban Development (HUD) for a list of local government home buying programs and resources. You can also speak with lenders in your area to become familiar with the requirements and find out when classes are being held. If there are classes offered to the public, consider sending that information to your buyer leads who are just beginning their home search. Not only will it keep you top of mind as their preferred real estate agent, it could also help them reach their goals sooner than later. 

Down Payment Assistance FAQs

Below are some common questions that come up when discussing down payment assistance.

How long does it take to get down payment assistance?

How long it takes depends on the program and the type of assistance. Each state offers its own programs, as do different cities and organizations. These programs move at different speeds depending on the demand and size of the program.

The assistance program must work with the chosen lender to secure the loan and the down payment funds. This can add time onto the closing process, depending on how quickly the down payment assistance program acts.

What are the requirements?

The two most common requirements are a minimum credit score of 620 or higher, and income that meets the program’s requirements.

Some other common program requirements:

  • The home must be in a specific locale or county.
  • The applicant must be a first-time home buyer.
  • The applicant must attend a class on home buying and finances.
  • The applicant must live in the home for a certain amount of time (often 3 – 10 years).

The Bottom Line: Don’t Let The Down Payment Keep Your Client Down

We’ve all felt the pinch of the rising cost of living but for first-time home buyers the sticker shock might send them back to their landlord to sign a new lease. Thankfully today’s home buyers have more options to help with some of the upfront costs.

Down payment and closing cost assistance from a third-party provider can help your client’s cover down payment and other out-of -pocket loan expenses so they can hit the housing market running with confidence. Make sure they fully understand the terms of the program they’re applying to and discuss any of those requirements with their lender.

Want to know more about down payment assistance and other real estate trends? Reach out to your dedicated support team at Rocket ProSM Insight  , call (888) 861-2161 to discuss DPA options and much more. 

Disclaimer:

Rocket Mortgage does not accept all down payment assistance programs (and acceptance is not guaranteed). Rocket Mortgage reserves the right to deny acceptance of a down payment assistance program. Reasons for denial may include, but are not limited to, our internal and investor guidelines, mortgage product underwriting restrictions, and mortgage program requirements. Rocket Mortgage does not influence any underwriting or credit evaluation processes performed by your down payment assistance provider.  Acceptance of a down payment assistance program is not a commitment to lend. Additional conditions/restrictions may apply.

Carla Ayers

Carla is a freelance writer and Realtor with a background in marketing, communications and property management. She attended Eastern Michigan University where she received a Bachelors in Arts Marketing and a Masters in Integrated Marketing & Communications.