Down Payment Assistance Pros and Cons

Have you wondered about the pros and cons of Down Payment Assistance (DPA) programs?

DPA’s are intended to make new homes affordable for low to middle-income buyers (some income limits are quite high now extending to $92,984 or higher).

I know as a first-time homebuyer I didn’t have a 20% down payment saved up.  There are a variety of programs for people who are looking to buy a home. The DPA programs are designed to help you with your purchase.  Some programs require as little as 3% down.

The great thing about DPA’s is they can be used whether you are a first-time buyer or fifth-time buyer (unless there is a state-specific program that sets its own rules).

In general, it’s good to keep in mind that many of these programs are government-based.  You should be aware that some stipulations may be placed on your purchase.

Some grants don’t have any stipulations, while others, for instance, require the property to be owner-occupied for a certain length of time.

It’s important to speak to the lender and find out all of the information about the programs they are discussing with you.  There are a good number of details that are considered when applying for assistance.  Factors like credit score requirements, geographic limitations, and maximum income requirements.

For any assistance or questions regarding any down payment loan, it’s always best to reach out to your mortgage professional.

Let’s take a look at some options and the pros and cons of each.

Conventional 3%

A conventional loan only requires a minimum down payment of 3% of the purchase price. If you are looking for a small down payment option, this is a great option to consider.

The con is, as a result of your lower down payment, your private mortgage insurance (PMI) will be higher.  This is a great option for any buyer who wants to make a small down payment and who has a good credit score.

Conventional 20%

Placing 20% of the purchase price down gets you started with a good amount of equity in your property.  When you put 20% down, you do not have to pay PMI and your closing costs will likely be lower.

The con is that a larger down payment can be hard to save up for, but this is still the most popular program.

FHA Mortgage Program

The Federal Housing Administration (FHA) offers several different programs, essentially offering the home buyer lower down payments and lower interest rates in correlation with your credit score.

The benefit with an FHA loan is that it offers flexible terms for loan repayment with only 3.5% down, and your down payment can be gifted from a family member or taken from your 401k.

The con is it carries two different types of Mortgage Insurance Premium (MIP), a percentage of your loan that get’s financed into your loan AND a monthly PMI. This option might be best for someone who has a small down payment or not so perfect credit.

The Certo Team

55 N. Arizona Place

Suite #103
Chandler, AZ 85225

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