Down Payment Assistance is a option that is available for lots of home buyers and can greatly help with the home buying process. DPA, as it is refered to for short, can be found from many different agency’s in each state but here in Colorado we have some very popular options. There is a “Fear” that people have with Down Payment assistance because it operates much like a second mortgage. The term Second mortgage is often placed in the Blame for our current market as people in the past used inflated appraisals to get second mortgage’s on their homes which were not worth what they were financing. Lucky for us we have lots of very very strict regulation on this process now and it is very hard to end up in a terrible situation using DPA. ALL of the DPA programs our buyers have been using in Colorado require the buyers to take a class on home ownership. This does lots for the knowledge needed to own a home without becoming upside down. The appraisal process that is used with all of the DPA programs is also very strict and will not allow for the property to be over financed. This means that if someone is looking at using DPA and they find a over priced listing they will likely not be able to purchase that house. It works in the opposite direction as well. If a home is in need of to much work the appraiser will make note of the repairs needed and if the sellers are not willing to put the house into an acceptable condition the buyers can not purchase the home.
When buying a home there are a lot of things people are going to want to spend some extra money on and that could be Paint, Carpet, Appliances, repairs the list is never ending. If you look at it from a logical standpoint and you put down money on the house but have no money to make the needed changes VS financing the entire house and having the money to do the things needed to live in the home. Which scenario is a buyer going to be more likely to walk away from? The house that they have a tiny bit of Equity in that needs repairs or the perfect home? The payment difference between the 2 options is usually under $50 per month (under $200,000 where most DPA people are looking) range. If the market were to take another loss after the purchase in our current scenario that should be of little concern for our DPA buyers. The Focus of DPA lending is to get people into homes for long term and the ever changing market of Real Estate should not bother someone who has no intention of selling their home. If you are looking to live in the house for 2-3 years then DPA would likely not be the best option. The reason I say this is because of the ability to sell the home for a profit in that short amount of time as the first few years of home ownership dont typically pay down enough of the principal on the loan balance to afford paying the fee’s involved with selling a home in Colorado.
All of the DPA programs require a certain amount of $ to be paid for by the Buyer. Usually $1,000, this means the buyer would be putting up the $1,000 as Earnest money in most cases and applying it to the transaction at closing. The other fee’s that the buyers should be considering would be the Appraisal fee (normally $400) and the fee for the Buyers Inspection (normally around $300) This makes the total out of pocket expense for a lot of buyers only $1700 and that gets them into a home. There are other ways to structure this where you could only put up $500 Earnest money and show your payments of the inspection and appraisal to be enough for the requirements for most of the DPA programs. This would bring the out of pocket expense down to $1,200! Ish.
Below are some links to some of the different DPA programs available in CO.
There are others as well and each city government should have information on programs in the areas you are looking for. You will need to make sure the lender you are working with is able to work with the different programs, if they don’t know what you are talking about then you should find someone who does understand the programs as well as the Lenders I have listed below!