By Charity Ohlund
If you’ve set your sights on becoming a homeowner but the looming down payment has you feeling overwhelmed, you’re not alone. According to the National Realtors (NAR) Home Buyer and Seller Generational Trends Report, around 53% of all buyers identified saving for a down payment as the most challenging step in the home buying process.
Enter down payment assistance. At Fountain Mortgage, we get asked about down payment assistance often. And we get it! This financial lifeline sounds pretty enticing at first glance, but like all things in life, it comes with its own set of pros and cons. Let’s break down the benefits and drawbacks of down payment assistance, so you can navigate this path with confidence.
The upsides: Benefits of down payment assistance
- Opening the door to homeownership: The most obvious perk of down payment assistance is in its name – it assists you in making that all-important down payment. If you’re struggling to save up a significant sum, these programs can provide the boost you need to finally step into your own home.
- Quicker entry: Traditional down payments can often be a hefty chunk of change, potentially putting your homeownership dreams on hold for years. With assistance, you can potentially secure a mortgage with a lower upfront cost, making homeownership a reality sooner than you could secure it on your own.
- Access to competitive interest rates: Some down payment assistance programs also offer competitive interest rates.* (But unfortunately, not most!) This means not only are you getting help with the initial down payment, but you’re also saving money over the life of your mortgage through lower monthly payments.
- Diverse eligibility criteria: Down payment assistance isn’t always limited to first-time homebuyers. Depending on the program*, you might qualify if you’re a repeat homebuyer, a veteran, or if you’re buying in certain designated areas.
The downsides: Drawbacks of down payment assistance
- Potential limitations: Many down payment assistance programs have specific criteria you need to meet. This could include income restrictions, credit score requirements, or even property location limitations. Failing to meet these criteria could disqualify you from assistance.
- Strings attached: While down payment assistance sounds like a dream come true, it often comes with certain conditions. Some programs might require you to live in the home for a certain period of time, limiting your ability to sell or rent it out without penalties in the form of repayment. These time periods can be as long as 10 years.
- Future costs: While assistance can help you secure your home with a smaller down payment, it might lead to a larger loan amount or higher interest rate. This, in turn, can result in higher monthly mortgage payments and potentially more interest paid over the life of the loan.
- Limited availability: Depending on your location and the program’s funding, down payment assistance might not always be readily available. This means you’ll need to do your homework and act swiftly when opportunities arise.
Down payment assistance can be a real help to some homeowners, providing a much-needed helping hand on the road to homeownership. However, there are often better products with more favorable terms available, even if you don’t have much money saved up. It’s essential to weigh the benefits against the potential drawbacks and determine if the program aligns with your long-term financial goals. Our experienced team of loan officers is available to provide you with a free consultation to provide you with every option available. Contact us today at 913-745-7000 to get started!
This weekly Sponsored Column is written by Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation.
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