Down payment assistance. You’ve probably heard this term a lot as it relates to first-time buyers.

But, if you’re a seasoned buyer is there still help out there? Can second- or third-time buyers qualify for assistance? The simple answer is: yes. For the more detailed explanation, let’s examine the following questions. 

What is down payment assistance? 

Down payment assistance (DPA) programs were designed to help homebuyers who might otherwise be shut out of the market. But, contrary to popular belief, you don’t need to be income-challenged to qualify for assistance. Often, consumers might qualify for a mortgage, but they just don’t have quite enough for a down payment. Or, they may have some cash in the bank, but using it for a down payment would deplete their savings, leaving them with no cushion. For those borrowers, down payment assistance can be a great option. 

These programs are typically administered by local or state housing authorities, a nonprofit organization or other public entity, or directly through a lender. Buyers who qualify for DPA receive a set amount of money to be used for their down payment or closing costs.

Unfortunately, there are millions of dollars in down payment assistance that go unused because borrowers simply don’t know what’s available to them. In fact, a recent survey found that 70 percent of adults are unaware that down payment assistance even exists.

 

What is a first-time buyer? 

While it may seem self-explanatory, the label “first-time buyer” encompasses more than just someone who has never owned a home.  According to Fannie Mae, a first-time homebuyer is someone who has not owned in three years. However, there are some exceptions. For example, if one spouse currently owns a home but the other does not, and they are purchasing a new home together, they would also qualify as first-time homebuyers.  

“Some programs expand the definition to include widows or recent divorcees if they have to leave the marital home,” said Denya Macaluso, AVP of residential lending for Michigan State University Federal Credit Union. “There may be other situations that would allow a borrower to qualify as a first-time buyer, so it’s best to check with the program administrator or your lender.” 

What about those who have recently owned?

So, what if you don’t meet any of the above criteria? Well, the good news is that not all DPA programs are reserved for first-time homebuyers. In fact, about 37 percent of programs found through Down Payment Resource do not include a first-time buyer requirement.
Macaluso says that other criteria, such as area median income, profession, and credit qualification, can also allow a homebuyer to qualify for assistance. 

“More than 14 percent of DPA programs are designed for individuals who provide an important community service like educators, police, firefighters, healthcare workers, and veterans,” she said. 

How does a buyer qualify for DPA?

Each program has its own qualifying criteria. Typically, there are household income thresholds, credit score minimums, and cash reserve requirements. Income thresholds are based on the area median income—up to 120 percent in high-cost markets. Income limits are almost always based on household size, so limits for a family of five are significantly higher than for a single person.
“Most programs will require some money down from the homebuyer,” said Macaluso. “And, most will also require education throughout the home buying process, especially for first-time homebuyers, to ensure long-term homeownership success.” 

Are there any stipulations? 

DPA programs can take many different forms — a grant, silent second, an interest-free loan, a delayed repayment loan, or a lender-specific program. Typically, homebuyers will need to agree to live in the home and use it as their principal residence for a certain period of time to avoid repaying the money. If down payment assistance is treated as a loan, it would have to be paid back in full if the property is sold.

 

How can I find out more about DPA?

Because there are so many different types of programs, it’s a good idea for borrowers to find a professional, local lender who is knowledgeable and experienced with DPA options. Borrowers may also want to contact the township or city where they are looking to purchase, as different areas qualify for different programs.

Down Payment Resource (www.downpaymentresource.com) is another place to research available DPA programs. This comprehensive online tool makes the search for assistance easy by not only explaining how down payment assistance works, but also by allowing consumers to check eligibility. By answering a few quick questions, the site will pull up all area programs that may match your specific circumstances.

Further, potential home buyers can see what homes qualify for down payment assistance and see if they qualify for any programs in Down Payment Resource on the Greater Lansing Association of REALTORS website, www.lansing-realestate.com

“Another great resource is local nonprofit housing organizations,” said Macaluso. “For example, the Michigan State Housing Development Authority (MSHDA) provides a host of educational opportunities and programs for potential homeowners. The criteria can vary greatly so homebuyers should investigate options that work for their situation.” 

If you’d like to explore the DPA options available to you, your trusted, local REALTOR® and lender can be great resources. If you aren’t yet partnered with these professionals and need a list of area service providers, visit the Greater Lansing Association of REALTORS® website at www.lansing-realestate.com.