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Down payment assistance: three options that can help you buy your first home

It’s a big hurdle among first-time homeowners: the dreaded down payment.

A monthly mortgage seems within reach, but putting 20 percent down up front? That’s another story. But don’t throw in the towel on homeownership just yet. You may be eligible for down payment assistance from your state, county and city government.

The truth about 20 percent
Despite what you may have heard, you don’t necessarily need to pay 20 percent down.

For example, low to moderate income borrowers may qualify for an FHA (Federal Housing Administration) loan, which allows you to make a much smaller down payment. However, you’ll need to get mortgage insurance, which will raise your monthly total due. So it’s a trade-off.

Bottom line? While 20 percent down isn’t always required, the more you can pay for your home up front, the better it is for your finances.

Now, about that down payment help. Here are the three main types of assistance you should investigate:

Planning on living in your home for a while? You may qualify for a grant, i.e., funds you don’t have to pay back as long as you stay in your residence for a certain amount of time. Restrictions vary state by state.

Second mortgage loans
Many state and local governments offer sweet interest rates on second mortgage loans (some are as low as zero percent!). Plus, the payments are deferred over a period of time, making it easier for you to pay off the loan every month.

Tax credits
Mortgage credit certificates can reduce the federal income tax you pay on your home. So with less required down, you’ll have more money to access upfront to cover your down payment or closing costs.

Again, these certificates are offered by certain state and local governments.

Are you eligible?
Curious if any of these assistance programs apply to you? Both you and the home you’re trying to buy must be eligible. Eligibility is determined by a variety of factors, including the home’s sale price, your income, and homeownership history.

If all of this sounds good but you’re just sure where to start, contact one of our Certified Financial Counselors.


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