couple getting a loan
Buying, Finance

Loan and Grant Programs That Help With Closing Costs and Down Payments

While it’s encouraged to put 20% down to avoid additional fees, it’s sometimes just not possible. Luckily, there are options if you plan to purchase a home in 2020 that will help to alleviate the up-front costs of buying a home.

In 2020, 750,000 new construction homes are expected to be sold and a whopping 5.6 million existing homes are expected to sell. For many of those home buyers; however, the hurdle of a down payment and closing costs is a struggle. While it’s encouraged to put 20% down to avoid additional fees, it’s sometimes just not possible. In fact, over half of people surveyed by the National Association of Realtors stated it would be somewhat difficult to become a homeowner based on their current financial situation. Luckily, there are options if you plan to purchase a home in 2020 that will help to alleviate the up-front costs of buying a home.

Federal Programs Available

FHA Loan

One of the most popular federal programs available to home buyers is a Federal Housing Administration (FHA) loan. In fact, one in five home buyers utilize an FHA loan. FHA loans are designed for owner-occupants. There are many benefits to utilizing an FHA loan including:

  • Low Down Payments: With an FHA loan, your down payment can be as little as 3.5% of the purchase price.
  • Low Closing Costs: FHA also offers low closing costs. Since the buyer is putting down less than 20%, there is a minimal fee (MIP), but it can be rolled into the loan. Another method to help with closing costs is to request the seller to pay some.

RD Loan

Rural Development (RD) loans are very appealing because they provide a $0 down. These loans, however, have very specific requirements, and not everyone is eligible. To be eligible for an RD loan, keep in mind the following qualifications:

  • The property must be in a designated rural area with a population of less than 10,000. Homes in metropolitan, high-population areas would not qualify.
  • The home must be an owner-occupied primary residence.
  • This loan is designed for low-to-middle income households

VA Loan

These loans are backed by the US Department of Veteran Affairs and are designated solely for active or retired military personnel. Like the RD loan, a VA loan provides $0 down. One of the benefits of a VA loan is that the borrower can avoid private mortgage insurance (PMI). There are requirements to be eligible for a VA loan:

  • The home must be an owner-occupied primary residence
  • Borrower must have a valid Certificate of Eligibility (COE)
  • Income and credit score are a factor in loan approval

couple getting a loan

Additional Programs Available

Advantage Program

This program is a down payment assistance program to be used in conjunction with an FHA loan. This down payment funds provided are designated as a grant to the borrower, and the grant is completely forgivable. There are several benefits to the Advantage Program including:

  • Down payment assistance up to 2% of the purchase price
  • Can be combined with seller concessions up to 6%
  • FICO scores as low as 580 can be eligible
  • No resale or borrower repayment restrictions
  • Designed for first time home buyers or first responders, educators, medical personnel, civil servant or military personnel.

State Specific Programs

Some states have down payment programs which are specific only to residents within that state. For example, the state of Arkansas has the ADFA Homeownership and Down Payment Assistance program. These programs typically provide down payment assistance; however, they do come with strings attached such as residency requirements, credit score, and income parameters.

Good Neighbor Next Door Program:

This program originates from the Department of Housing and Urban Development. Designed solely for law enforcement officers, elementary through high school teachers, firefighters and EMTs, this program provides homes at half price to qualified borrowers. Beyond career designations, there are other qualifications for this program:

  • The home must be owner-occupied for at least 36 months after purchase
  • The home must be located in a designated revitalization area
  • Properties are only available for purchase for up to 7 days after listing
  • The 50% discounted amount appears as a silent 2nd mortgage on the home with no payments or interest on the 2nd mortgage if the borrower meets the occupancy requirements

In addition to federal and state programs, numerous local and municipal programs are available across the US. It’s important to consult an experienced loan officer to evaluate all the programs and to find the best option for your needs.

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Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She's passionate about the power of real estate. She's also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.

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