Cash-strapped couples buying their first home often need help with the down payment. A down payment assistance program can help you cover all or part of your down payment requirement. Nonprofit organizations and government agencies usually provide the funds and you must meet their criteria to qualify. The help is intended for first-time buyers who have not owned a property for the past three years and who plan to use the home as their primary residence.
There are generally two types of down payment help available to low- and moderate-income first-time buyers. Assistance in the form of a down payment grant requires no monthly payments or repayment when you sell, refinance or stop living in the home. You must usually live in the home for a minimum amount of time -- at least several years. Assistance in the form of a secondary loan requires repayment, either in installments or in a lump sum, when you sell, refinance or no longer occupy the house. Most down payment assistance programs require you to complete prepurchase counseling. The free or minimal-cost classes teach you to budget and provide other helpful information on home-buying and homeownership.
The amount offered as down payment help depends on the assistance program and limitations set by your mortgage lender. The Federal Housing Administration, a mortgage insurance program widely-used by moderate-income borrowers and first-time buyers, allows you to use down payment assistance to cover the entire 3.5 percent down payment requirement. The down payment is based on the home's value at the time of purchase. Conventional, nongovernment-backed loans typically require a 5 percent to 20 percent down payment. As such, they may allow for down payment assistance that covers a majority of the down payment, but typically require you to contribute a minimal amount of your own funds, such as 5 percent.
San Francisco Assistance
The Downpayment Assistance Loan Program, or DALP, helps low- and moderate income buyers purchasing single-family homes in the city and county of San Francisco. Known as a "silent second" loan, the down payment assistance requires no repayment for 40 years or you must pay once you pay off the first mortgage, whichever occurs first. You share a portion of the home's appreciation, or profit, with the program if you sell and pay of the silent second loan. The DALP loan limit is $100,000 or 15 percent of the purchase price, whichever is less. You must come up with at least 5 percent down -- 3 percent of which must come out of your own.
The California Homebuyer's Downpayment Assistance Program, or CHDAP, allows you to get 3 percent of the purchase price in the form of a silent second loan. Repayment is deferred until you pay off the first mortgage and the interest rate depends on lender market rates at the time of origination. CHDAP imposes sale price limits of $673,615 in "nontargeted" areas and $823,308 in "targeted" areas of San Francisco. In targeted areas, 70 percent of families earn 80 percent or less than the statewide median income. As of mid-2013, five areas of San Francisco fall into this category.
You must complete a first-time home buyer education class to qualify for down payment help. The class includes information on budgeting, the home buying process and buyer financing. Typically offered for free or minimal cost -- less than $50 -- per borrower, the class must be approved by the Department of Housing and Urban Development.
- California Housing Finance Agency: California Homebuyer's Downpayment Assistance Program (CHDAP)
- San Francisco Mayor's Office of Housing and Community Development: Downpayment Assistance Loan Program (DALP)
- California Housing Finance Agency: Federally Designated Targeted Areas
- HUD: HUD Approved Housing Counseling Agencies: San Francisco
- Housing Eduction.org: Free Workshops
Karina C. Hernandez is a real estate agent in San Diego. She has covered housing and personal finance topics for multiple internet channels over the past 10 years. Karina has a B.A. in English from UCLA and has written for eHow, sfGate, the nest, Quicken, TurboTax, RE/Max, Zacks and Opposing Views.