The Down Payment Dilemma

Help Your Clients with Their Biggest Hurdle

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 borrowers to save towards the purchase of a home, especially with conventional mortgages, which require anywhere between 5-20 percent down. For a would-be homebuyer trying to buy a $500,000 or $600,000 house, that could equate to over $100,000 in cash needed at the closing table.

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

FEDERALLY INSURED LOANS

Federal loan programs can offer more lenient terms and requirements, especially for those struggling to get approved through traditional financing methods. Said another way, borrowers that don’t have a lot money saved or a stellar credit score may be eligible for a federal down payment assistance program to help with closing costs. • FHA: Federal Housing Administration (FHA) mortgages are available for as little as 3.5 percent down and a 580 credit score. FHA mortgages are offered at most banks, including FirstBank, and can be a little more flexible in buyer requirements, because the FHA “backs” the mortgage in case the homeowner defaults. But there is a drawback. Borrowers will likely pay a premium on private mortgage insurance (PMI) for the life of the loan, which can add up considerably.

DOWN PAYMENT ASSISTANCE PROGRAMS

While government-backed programs can reduce the total down payment needed to secure a loan, cash to close the deal is still needed. 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, Impact Development (formerly known as Funding Partners) is a 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

Local housing authorities are a great starting resource for down payment assistance programs in most areas. The Colorado Housing and Finance Authority (CHFA) offers first-time homebuyers grants of up to four percent on their mortgage with no obligation to repay. There are even programs available at the city and county level. For example:

• 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 firsttime home buyers.

• Denver residents can turn to Del Norte, a neighborhood development group, for counseling and down payment assistance.

GET PREPARED

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

• PRACTICE BUDGETING: Before starting the mortgage lending process, always encourage homebuyers to sort personal finances with a budget. FirstBank’s Money Manager is one effective mobile banking tool borrowers can use to help do exactly that. It allows individuals to create budgets, set financial goals, monitor spending activity, track income and expenses. Not only will budgeting and tracking tell them how much house can be afforded, it can help save for a new home.

• ACKNOWLEDGE INCOME LIMITS: Many down payment assistance programs are limited to homebuyers within certain income brackets that are determined by data released from HUD. Homebuyers should talk to a lender or down payment program administrator to see if they qualify. • CREDIT CHECK: Even government-insured loans that qualify for down payment assistance programs have minimum credit requirements. It’s a good idea for borrowers to monitor their credit scores with the major bureaus before beginning the home loan process. If borrowers need to increase their score to meet requirements, there are a bevy of ways to go about that, such as keeping credit utilization below 30 percent and by consistently paying credit card bills on time.

• GET EDUCATED: The home buying process can be complicated, so it’s a good idea for borrowers to educate themselves 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, homeownership remains an important component of the American dream. And with the help of governmentbacked loans and down payment assistance programs, the American dream can still be within reach.

This article was provided by FirstBank.