First time homebuyers in the US and Canada both have some options for down payment assistance.
In times like these, any boost to housing affordability is helpful. Additionally, there are local assistance programs, such as NYC’s HomeFirst Down Payment Assistance Program.
In this article, however, we will go over some of the broader programs you can find in the US and Canada. We will also give you some direction for finding local resources.
What is a down payment assistance program?
Down payment assistance (DPA) programs are ones with limited eligibility to help some homebuyers afford a mortgage down payment.
Normally, this means loans or grants that make paying a down payment possible.
Down payment assistance varies greatly from program to program. Some provide simple, outright grants to put towards a down payment. Others simply provide a low-interest or no-interest loan to cover your down payment.
In some cases, DPA funds can be paid towards the closing costs for buying a home.
When it comes to eligibility for these programs, there is an equally wide range. Some programs are reserved for military veterans, for example.
Many DPA programs are not available to any borrower unless they are buying their first home.
How can I get money for a down payment on a house?
To get money for a down payment, you have a few options.
First, you can simply try to maximize your creditworthiness while saving. You may need to downsize your current lifestyle for this. But by cutting expenses while building credit, you can:
- Save more money for a down payment
- Possibly reduce the necessary size of your down payment
Next, there are down payment assistance programs. Many local banks offer their own programs for this purpose. So, it’s always good to check with your local banks as well.
Another option is Federal Housing Administration (FHA) loans. The FHA doesn’t provide loans directly, but they offer FHA-backed loans through approved lenders.
Because these mortgages are backed by the Federal Government, the lender doesn’t take on much risk. So, you, the borrower, get favorable treatment in the form of lower interest rates and lower down payments.
First-time home buyers may be eligible for FHA loans with lower down payment requirements. Borrowers with credit scores even as low as 580 may qualify for an FHA-backed home loan with a down payment as small as 3.5%.
With an even lower credit score (as low as 500), some borrowers may qualify for a loan with a 10% down payment.
Down payment assistance mortgages
These are loan products that replace at least part of the cash you need for your down payment with borrowed money. Normally, they should offer more favorable terms.
Deferred mortgages
Deferred mortgages are similar to down payment assistance mortgages.
They are loans that don’t require repayment while you live in your bought home. You don’t repay until you either sell your home or refinance it.
Normally, these mortgages are offered through municipalities and local institutions. They are also normally limited to first-time homebuyers with good credit histories.
What about Canadian First-Time Home Buyers?
In addition to the same types of home loan products, the CMHC offers Canadian first-time home buyers with some assistance.
The Canada Mortgage and Housing Corporation (CMHC) offers some similar benefits. First time home buyers may qualify for the First Time Home Buyer Incentive. It’s not the same as its FHA counterparts, however.
With the CMHC First Time Home Buyer Incentive, the Government of Canada provides 5% or 10% of the cost of a newly constructed home. For an existing home, the cap is set at 5%. Mobile and other manufactured homes come with the same 5% incentive.
This incentive is only available to Canadian first-time homebuyers with qualified incomes of $120,000 or less. However, the mortgage and incentive amount together cannot equal more than 4 times the borrower’s annual income.
First-time home buyers grant
There is more than one first time home buyer’s down payment assistance grant.
National Homebuyers Fund
The NHF is a non-profit established in 2002 that seeks to make home ownership viable for more people.
They offer several programs, including a “Down Payment Assistance” plan that covers up to 5% of qualifying borrowers’ mortgage amounts. This assistance can go towards down payment and/or closing costs.
State grants
It is beyond the purview of this article to list the many state and local grants available to homebuyers in the US.
Thankfully, the US Department of Housing and Urban Development keeps tabs on these programs. You can check their directory of local homebuying programs to see if there’s one available to you.
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Conclusions
There are plenty of assistance programs for first-time homebuyers!
Down payment assistance can be particularly easy to come by in the US and Canada. But it still pays to be frugal, save money, and maximize your creditworthiness while you search for a home to buy.
Ultimately, the majority of individual programs for down payment or other mortgage assistance are offered locally.
So, look to non-profits and local government institutions – you may be surprised by what you find!
Editor’s note: This article was originally published Jun 25, 2022 and has been updated to improve reader experience.
