How to Overcome the Biggest Obstacle to Home Ownership

Raising enough cash for a down payment is often the biggest hurdle for homebuyers.

According to some estimates, it can take up to 15 years for people to save towards the purchase of a home, especially with conventional mortgages, which require anywhere between 5 to 20 percent down. If you’re trying to buy a $400,000 house, that could equate to $80,000 in cash you need to bring to the closing table. Bummer, right?

The good news is there are a variety of programs to get you into a home sooner than you may think. Here’s how:

Ask Uncle Sam for Help

Federal loan programs can offer more lenient terms and requirements, especially for those struggling to get approved through traditional financing methods. Said another way, if you don’t have that much money saved or a stellar credit score, Uncle Sam may have your back.

• FHA: For instance, you can get a Federal Housing Administration (FHA) mortgage with as little as 3.5 percent down and a 580 credit score. FHA mortgages are offered at most banks and can be a little more lax in buyer requirements, because the FHA “backs” the mortgage in case the homeowner defaults. The drawback? You’ll pay a premium on private mortgage insurance (PMI) for the life of the loan, which can add up considerably.

While FirstBank doesn’t offer these loan options, buyers can also consider:

• USDA: If you’re buying a home in a rural area (or even in a small town), you could qualify for a U.S. Department of Agriculture (USDA) loan. USDA loans offer low rates and can cover 100 percent financing, so there’s no down payment required. But like FHA loans, you may pay a pricey mortgage insurance premium.

• VA: And if you’re a veteran, active service-member or a surviving spouse, you could qualify for a Veterans Administration (VA) loan, which offers low rates, requires no down payment or mortgage insurance. The disadvantages of VA loans is they can make for a long, drawn-out mortgage approval process as compared to conventional lending options.

Tap Down Payment Assistance Programs

While government-backed programs can reduce the total down payment needed to secure a loan, you’ll still need some cash to close the deal. This is where down payment assistance —  which provides grants or loans to cover some or all of the down payment and closing costs — can help.

Over the years FirstBank has teamed up with several affordable housing nonprofits to offer down payment assistance for qualified homebuyers. For instance, FirstBank set up a $1 million fund with Trellis, an Arizona Housing Services organization, to offer qualified homebuyers up to $45,000 for a down payment towards a new home. Impact Development (formerly known as Funding Partners) is also FirstBank partner that helps first-time homebuyers and small businesses by providing up to $20,000 in down payment assistance.

Contact State and Local Housing Authorities

Additionally, your local housing authorities are a great starting resource for down payment assistance programs in your area. The Colorado Housing and Finance Authorityoffers first-time homebuyers grants of up to four percent on their mortgage with no obligation to repay. The California Housing Finance Agency offers a one-time deferred loan of 3.5 percent on a home’s purchase price for qualifying families and up to four percent for public school employees.

The HOME PLUS Home loan program administered by the Arizona Department of Housing offers 30-year, fixed rate mortgages with down payment assistance that ranges from zero to five percent, depending on the specific mortgage. There are even programs available at the city and county level. For example:

• The City of Palm Desert provides a $30,000 down payment loan to low-to-moderate income families.
• Boulder County residents can receive loans from Longmont Housing and Community Investment to cover down payment and closing costs up to 8.5 percent of the purchase price.
• Qualified Douglas County residents can also access low interest rate loans with down payments as low as $1,000.
• The City of Aurora offers up to $10,000 in down payment and closing cost funding for qualified first-time home buyers.
• Denver residents can turn to Del Norte, a neighborhood development group, for counseling and down payment assistance.
• Phoenix residents can look to local homeownership counseling agencies for help with down payment funds.

Be sure to check out the HUD homeownership assistance pages for California, Colorado and Arizona for links to more local resources.

Get Prepared  

While many of these federal loan and down payment assistance programs have looser eligibility criteria than conventional home loans, it’s still essential that homebuyers prepares themselves for the process.

• Practice Budgeting:. Before starting the mortgage lending process, sort your personal finances with a budget. Not only will this give you an idea of how much house you can afford, but it will help you get on track to save for your new home.

• Check Your Credit: Even government-insured loans that qualify for down payment assistance programs have minimum credit requirements. It’s a good idea to monitor your credit score with the major bureaus before beginning the home loan process. And if you need to increase your score to meet requirements, here’s how you can do it.

• Know Your Income Limits: Many down payment assistance programs are limited to homebuyers within certain income brackets that are determined by data released from HUD. Talk to your lender or down payment program administrator to see if you qualify.

• Get Educated: The home buying process can be complicated, so it’s a good idea to educate yourself on the finer points. Homebuyer education programs teach more than just “how to get a mortgage.” They also help homebuyers determine how much house they can afford. Check out HUD for approved state and local agencies offering these types of programs.

Despite market shifts that have made purchasing a home seemingly out of reach for folks, millennials in particular, home ownership remains an important component of the American dream. And with the help of government-backed loans and down payment assistance programs, the American dream can still be within reach.

Article originally published by FirstBank and can be found on their website by clicking here.