Home Buyer Grants vs Down Payment Assistance

Many DO NOT know the difference between a home buyer grants and down payment assistance when purchasing a new home. They are not the same. This article will explain the difference and how they work.

For many, finding grants is one of the biggest hazards they have to navigate. Once the application process is in place for a mortgage, the amount of down payment you can put down decides the new Loan to Value (LTV). For example, if you have a down payment of $10,000 and the purchase price of the house is $100,000, your lender would have to allow a 90% LTV. If your down payment amount is $5,000, on the same purchase price, your lender would have to allow a 95% LTV.

In this article we will examine grants and down payment assistance programs. You need to know what they are and how they work. When it comes to help with down payments, there are 2 basic kinds:

• Home Buyer Grants
  
• Down Payment Assistance Programs
  

Home Buyer Grants Explained

When you think of mortgage grants, you naturally assume that it represents a gift or some form of charity. In a sense that is true. However, first time home buyer grants come with a little catch. In most cases (not all) there are certain limitations on these grants.

For example, some local agencies may put up the down payment money. But require you to pay it back when the home is sold no matter how long you lived there. Another may set limits on how long you must live in the home for the grant to be forgiven. In other words, you never have to pay it back if you continue to live in the home the period of time they set. That is why this form of assistance is called a grant instead of down payment assistance because you will not have to pay it back as long as you follow their time constraints.

Now here is an advantage. Sometimes the local agency that dispensed the federal funds will match those funds with some of their own money. This works out really cool, for example, the federal funds may be for $5,000. Then the local non-profit agency may match with another $1,500 for the total of a $6,500 grant. Now that's a nice gift!! In most cases that may be all you need for your down payment depending on the price of the house.

There are so many different agencies that have grants for home buyers that I cannot list them all in this article. So a diligent search will be required to find all the ones available in your particular community.

Down Payment Assistance Programs Explained

Down Payment Assistance programs work a little differently. There are many agencies that service the United States and are really charities themselves. They will put the down payment on the closing table for you, however the seller will need to make a charitable contribution equal to your down payment amount plus an administration fee for it to work.

You borrow the down payment money from the lender, then give it to the seller so he can make the gift to the charity. Since this is what is called a non-interested third party in the transaction, that is what makes this legal. The lenders know how this works and as long as their guidelines allow for this type of program then everything is alright.

However, these programs actually are not as good as the grant programs because you really did not put any money down. You have essentially borrowed the down payment creatively. So, you do not have any equity in the home. At least with a grant, you have some equity when you close and may not have to pay it back.

Home buyer grants are much harder to find and may not be available in every community. You'll need to search your local charities and government agencies to find out if they offer any of these types of grants.

On the web there are many who offer information for a price to locate these home buyer grants. Be careful since the information they are selling may be out of date. Grant programs change every year. Again, there are so many different ways to make this request. Knowing how is significant. You have to express yourself and carry out things in just the right way. You need a professional to help you find the real home buyer grants.

Jeff Ragan wants you to help you learn more about first time home buyer grants available and other helpful information on their website, First-Time-Home-Buyer-Solutions.com.