The greatest obstacle in purchasing a home today is a mortgage down payment,
but it doesn’t have to be, especially for first-time homebuyers. Many are unaware
of all the resources that are available through the private sector and even some
government provided assistance. This article will outline several different types of
zero-or- low down payment programs but let’s start off with a little quiz:
What do homebuyers think they need to put down when buying their first
The truth is, all those answers are simply false. In fact, the average down
payment for first time buyers to is just 6% and there are several programs that
require no down payment at all. It’s one of the greatest misconceptions people
have before speaking to a home mortgage lender.
So why are first-time buyers still facing more hurdles than repeat buyers?
Many have less savings, a collection of student loans and other large debts, and
are just starting out in their career field. Those combined can make it difficult for
anyone to get approved for any type of home loan, but especially for first time
buyers. Fortunately for first-time homebuyers there are many new systems in
place, including down payment assistant programs (DPAs) to help those get
What is a down payment?
The down payment is an up-front payment a buyer makes to purchase
something. It is the portion of the purchase price that the buyer pays for
him/herself (as opposed to borrowing). The money generally comes from
personal savings and is what the buyer “brings to the table” on the day of
settlement. Down payments are often (but not always!) part of receiving a loan.
The lender and the loan type will determine the minimum down payment required
and the remainder of the loan is paid off over time with regular installment
What are the benefits of making a down payment?
When a down payment is made there is a lower loan balance, which means
smaller monthly payments and less interest paid over the life of the loan.
Depending on how much a buyer is able to put down, he/she may avoid having
to pay Private Mortgage Insurance (PMI) and possibly receive a better mortgage
rate. There are also a large variety of loans from which a buyer can choose when
he/she is willing and able to make a down payment. That doesn’t necessarily
mean the down payment needs to be significant, any amount can help open new
loan opportunities for a buyer.
What are the drawbacks to making a down payment?
The obvious drawback is simply not having the cash in the bank to make a down
payment and having to wait longer (to save) to get financed for a mortgage loan.
Additionally, completely depleting a savings account is likely not a smart move in
the event of an emergency or repairs needed for the house. Still many choose to
provide a down payment to help lower their mortgage rates. However, even with
a large down payment there is no guarantee that a buyer will receive a better
mortgage rate. A mortgage rate is determined by many factors and often times
the amount of a down payment is a small factor when determining a mortgage
What low-or- no down payment options are available in your area?
Every mortgage lender should be able to let a buyer know what loans or
assistance programs are available in their area. Most banks have applications
on-hand for down payment assistance programs or at the very least can provide
buyers with a local web address to complete the application. The key is “speak
up!” Buyers need to know there are programs available and should not be afraid
to ask their lender what is available for use in their area. Just like with any
purchase, online search engines are a great resource to research first-time
homebuyers financial aides in the state of the purchase.
What are down payment assistance programs (DPAs)?
Many first time homebuyers are unaware of the access they have to down
payment assistance programs, many of which “grant” money instead of requiring
payment. In fact, less than ten percent of buyers even apply for down payment
assistance even when these programs are widely available to help reduce the
amount of cash required at closing; and to reduce a monthly mortgage for first
time homebuyers. Buyers are often just unaware that these assistance programs