As more millennials are transitioning from renters to homeowners, many have concerns about the money requirements needed to take the next step. Affording the down payment on a home is the top concern for 50 percent of millennials breaking into the housing market, and the common misconception of the 20 percent down rule can be daunting.
Budgeting for a 20 percent down payment can be an overwhelming task for people planning to buy a home. However, there are many loan programs designed to help potential homebuyers save on their down payment.
Down Payment Assistance
Provided by federal, state, county, city and non-profit agencies, down payment assistance programs help potential homebuyers by lending enough money to cover some or all of the down payment.
There are three different options when choosing a down payment assistance program:
- Apply for a grant. Provided by foundations or local governments, a grant doesn’t require reimbursement.
- Take out a loan. Generally, through monthly payments, the loan will need to be paid back to the lender. These loans are occasionally interest-free.
- Use tax credits.This is an amount of money subtracted from taxes owed so the potential buyer can put more money towards a down payment.
There are also a variety of other programs that support different groups – such as low-income individuals or public service professionals – and not all potential homebuyers will be eligible for every option.
There are many different mortgage loan programs to help cover the down payment of a home for any financial situation. It’s important to consider all options when shopping for a mortgage:
Conventional Home Loan: With down payments as low as three percent, conventional home loans generally offer more flexibility when it comes to loan terms.
FHA Loan: Designed for individuals with a low-to-moderate income level and credit score, FHA loans offer low down payments, allowing the borrower to buy a home with a minimum of 3.5 percent down payment.
USDA Loan: A mortgage loan program offered to potential homebuyers in rural areas. With no down payment requirement, borrowers can choose to make a zero down payment.
VA Loan: Home loans only eligible to Veterans and current service members, allowing borrowers to buy a home with little or no down payment.
Talk with a loan officer when considering different mortgage loan options to discuss the program requirements.