Help Bridge the Down Payment Gap
Do you have prospective borrowers who want to purchase a home, but lack the funds for a down payment and closing costs? You can help potential homebuyers bridge the affordability gap by connecting them with resources that they may not have otherwise known existed. Learn more about how you can grow your first-time homebuyer business by familiarizing yourself and your potential homebuyers with in-depth information about down payment and closing cost assistance options.
Information You Can Provide Prospective Borrowers
Sources of Funds
If your prospective first-time homebuyers or homebuyers of modest means are short of cash they need to close, you can help them fill the gap by providing them with information about the following sources of funds offered through state and local assistance programs:
- Down Payment and Closing Cost Assistance
Grants are funds that do not have to be paid back.
Second Mortgage Loans (Deferred Seconds)
Many down payment assistance programs come in the form of a second mortgage that has deferred payments.
- Monthly Housing Payment Assistance
- Mortgage Credit Certificates
Mortgage Credit Certificates generally allow homeowners to claim around 20 percent of the annual interest on their mortgage as a federal tax credit every year for the life of the original first mortgage (details vary by state). You can use the estimated amount of the credit on a monthly basis as additional income to help your potential borrower qualify for the mortgage loan.
- Mortgage Credit Certificates
Note that potential borrowers must meet specific requirements to qualify for each type of assistance. In addition, to be eligible for sale to Freddie Mac, the mortgage, including, but not limited to, the source of down payment or monthly housing payment assistance, must meet the requirements of Freddie Mac's Single-Family Seller/Servicer Guide (Guide).
State and Local Assistance Programs
Review the state and local government assistance programs below to help your borrowers understand and apply for grants, second mortgage loans, or Mortgage Credit Certificates.
State and Local Governments
Many states, cities, counties, and municipalities that administer affordable housing and community development programs are good starting points for borrowers seeking down payment or closing cost assistance in the form of a grant or second mortgage loan. Certain state or local governments also issue Mortgage Credit Certificates. The Department of Housing and Urban Development (HUD) provides assistance at the state and local levels through the following programs:
HOME Investment Partnerships Program
The HOME Investment Partnerships Program is the largest federal block grant to state and local governments (including HFAs), and is designed exclusively to create affordable housing for low-income households (those earning 80 percent or less of the area median income).
American Dream Down Payment Initiative (ADDI)
Administered under the Home Investment Program, the ADDI provides up to $10,000 in down payment, closing costs, and rehabilitation assistance (or 6 percent of the purchase price of the home, whichever is greater) to assist low-income families in becoming first-time homebuyers.
Community Development Block Grant (CDBG) Program
One of HUD's longest-running programs, the Community Development Block Grant (CDBG) Program provides communities with resources to address a wide range of unique community development needs, including affordable housing, anti-poverty programs, and infrastructure development.
Neighborhood Stabilization Program
A component of the Community Development Block Grant Program, HUD provides Neighborhood Stabilization Program (NSP) grants to communities hardest hit by foreclosures and delinquencies to purchase, rehabilitate, or redevelop homes and stabilize neighborhoods.
Housing Finance Agencies (HFAs)
Housing finance agencies, or HFAs, are state-chartered authorities established to help meet the affordable housing needs of the state's residents. They administer a wide range of affordable housing and community development programs, including the issuance of Mortgage Credit Certificates.
Applying for Assistance
Eligible borrowers seeking down payment and closing cost assistance should apply through the program administrator:
- State, city, county, municipality, or nonprofit designee offering the grant or second mortgage loan, or
- HFA or state or local government issuing the Mortgage Credit Certificate.
Online Information Resources
Find state and local down payment and closing cost assistance solutions in your area using the following resources:
- The U.S. Department of Housing and Urban Development (HUD) website provides information on local homebuying programs in all 50 states, Puerto Rico, and the U.S. Virgin Islands. Go to www.hud.gov/buying/localbuying.cfm, click on the state name, and then click on "homeownership assistance" to view names of programs and links to participating agency websites.
- You can also find all state agency websites at www.usa.gov/Agencies/State_and_Territories.shtml and click on the "housing" or "homeownership" page.
- The HUD website also has a list of counseling agencies providing HUD-approved homebuyer education at www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm (homebuyer education is required for some down payment and closing cost assistance).
- The National Council of State Housing Agencies (NCSHA) website has a directory and links to all of the state housing finance agencies. Go to www.ncsha.org/housing-help.