Apr 6, 2019
Did you know down payment assistance programs are real? And that you might qualify? Listen to learn more.
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Full Transcript:
Jeremy Goodrich:
Hey there, new home buyers, Jeremy Goodrich here. I am that guy.
That guy that bought my first home many, many years ago and had no
idea what I was getting into. I didn't use a realtor, I didn't have
an inspection, I didn't have a clue what documents I was signing,
and I ended up, you guessed it, buying a beat-up old house that I
spent years fixing only to sell for way less than I bought it for.
When it comes to home buying, I am the story of what not to do. But
that guy, that guy is not you. You are two times smarter, you're
three times more organized, and you're ten times better looking
than he was. You're going to find the right home for the right
price, and you're going to have fun doing it. That process starts
right here with the New Home Buyers Guide podcast. We're glad you
joined us.
Hey there, new home buyers. It's Jeremy and we are at episode five
of the New Home Buyers Guide podcast. This episode is so important,
it's all about down payments, but very specifically down payment
assistance programs. If you qualify, governments at state, local,
and federal levels could potentially help you buy a house by giving
you some money for the down payment. Our guest today is going to
talk in detail about that process, so you can see if you qualify
for that program and if it's something that you can try and do,
because it is really like free money. He'll describe that, so I
don't want to over state it. Listen to our guest and let him
describe how the program works.
Our guest today is another friend of mine who works in the home
buying process. He's a lender, that means he works for a bank and
he puts together loans for people so that they can buy a house. He
specializes in loans that connect with first-time home buyers that
maybe qualify for down payment assistance. I've been lucky enough
to have him help lots of times with questions that I have or my
clients have had about lending, and this particular question, I
really wanted to dig in with him, because I think the answers are
fascinating. Our guest today's name is Kevin Cade. He works at Old
National Bank, and he's going to talk about down payment assistance
programs. I hope you enjoy our conversation.
Thank you for being with us today.
Kevin Cade:
You're welcome, Jeremy. Good to be here.
Jeremy:
We're going to talk about something really specific today. We're
not talking generally about mortgages, we're talking about down
payments, and specifically down payment assistance programs.
Programs for people who could use assistance with their down
payment. I guess maybe the place to start is, what's a down
payment?
Kevin:
Well, a down payment is a requirement by any type of loan program
you have for folks to put money down to qualify for that particular
program. That varies from agency to agency, basically.
Jeremy:
And are there common amounts that someone, that a bank expects from
someone for a down payment to give them a loan?
Kevin:
Well, there's minimums. For example, Freddie Mac and Fannie Mae,
conventional type loans, require a minimum of 5% down. But they
also have programs that allow 3% down with income restrictions, so
the folks have to make under a certain threshold of income to
qualify for the lower down payment programs. They also typically
have to have some kind of home buyer training for those two
programs.
Jeremy:
So, someone who doesn't have the money for a down payment, doesn't
have that 5% of the purchase price of the home that they want to
buy, do they have options for help with that?
Kevin:
They absolutely do. The government, basically, local, federal, and
state, each provide different programs for down payment assistance.
Here in Bloomington, Indiana, we have what's called the HAND
department, it's a department of the city of Bloomington that
provides training and down payment assistance to folks who are
purchasing properties in the city of Bloomington. The Federal Home
Loan Bank also offers a program called the Home Ownership Program,
better known as HOP, and that's a different amount of down payment
assistance, and it is a federal type program. And then, at the
state level, the Indiana Housing Community Development Authority
also has a program that is based on the amount of loan you're
getting. These programs all require some type of home buyer
training and a maximum amount of income that the people that want
to qualify for it, based on the number of folks in their family,
have to qualify.
Jeremy:
So let me see if I've got it right. Generally, if you don't have
the money for down payment, and you still want to purchase a house,
there are some options. They come from the government, generally,
and they could come from either the federal or the state or your
local city government, potentially. And there are stipulations
associated with that.
Kevin:
That's true.
Jeremy:
So, income would probably be the major one. Is that right?
Kevin:
Yes. And the income parameters for those programs are basically the
same. It depends on the family size. It's a percentage of the
median income in the area you live in, or the county you live in.
For example, with the HAND department, I'll give you a couple of
examples that'll kind of give you the range. If you have a couple,
or two folks that are trying to qualify for their down payment
assistance, they have to make less than $39,950 household income.
And it goes all the way up to eight, so if you have six kids in a
family with the parents, the maximum amount of income is $65,900 on
that program, so they have to make less than that.
Jeremy:
So in our city, Bloomington, Indiana, we've got these numbers based
on median income in our town, and so likely if there is a city
program where other people live in different cities, these numbers
would be different because they would be based on the median income
in that city. Did I get that right?
Kevin:
That's correct. And all that's based on population density or
demographics and income averages within each of those areas,
basically by county.
Jeremy:
Okay, cool. So let's say I fit the income expectation for either a
federal, state, or city program. What do I need to do to apply for
that?
Kevin:
Well, the first thing you have to do is, you have to take some kind
of home buyer training. There are a number of ways to do that. As
an example, the HAND department here in the city of Bloomington
offers a home buyer training class almost quarterly. It varies
somewhat, but they learn about every aspect of buying a home. I've
actually referred people to that program that don't even qualify
for the down payment assistance, but that want to learn about the
process of getting a home, which can be very complicated. They take
that training just to find out about home owner's insurance, the
mortgage process. A realtor speaks and talks about the process of
looking and finding a home. A home inspector talks about how home
inspections work and why you should have one. There's a variety of
good knowledge they gain from taking these classes, and it also
qualifies them then for the down payment assistance.
Jeremy:
Okay, so you have to fit an income, and a lot of times you have to
take a class. That class could be in your local space, like the one
here in Bloomington, or I think there's some online classes
sometimes for the federal assistance, too. Different types of
classes that you need to take that teach you about how to buy a
house and how the process works, right?
Kevin:
Absolutely. For example, the mortgage insurance companies online
usually offer home buyer training. So that qualifies you for the
same down payment assistance.
Jeremy:
Okay, cool. And so, how much money can you get? How much assistance
is possible with these down payment programs?
Kevin:
It varies from year to year. They do change every once in a great
while. The city of Bloomington, for example, is a $5,000 down
payment assistance program. The home ownership program with Federal
Home Loan Bank is an $8,000 down payment assistance program. You
can use those in tandem and actually have $13,000 of forgivable
down payment assistance.
Jeremy:
Wow. So you can use more than one if you qualify for them and
follow through with the expectations of them.
Kevin:
Not all banks offer the option of doing both, but some of us
do.
Jeremy:
So, is your mortgage lender in control of whether you can do these
programs or not? Should you go to the lender first and ask them if
they do these programs before doing them?
Kevin:
Absolutely. First of all, if you're trying to do both, you want to
make sure that the bank you're talking to or the lender you're
talking to offers both. The banks sometimes have their own
requirements for these programs. Credit score, for example. It
might be a higher threshold that you have to have as far as your
credit score to qualify at one bank as it would possibly for
another.
Jeremy:
Okay, cool. All right, super cool. I didn't realize you could do
more than one, which is really, really neat. So you can even do
more than one.
Kevin:
Absolutely. Mm-hmm (affirmative).
Jeremy:
But you definitely need to talk to your mortgage lender ahead of
time, it sounds like that's a major factor in the process. If
you're working with a lender that doesn't accept any of these
programs, Kevin, would you suggest then looking around for maybe
another lender that's capable of handling these programs?
Kevin:
Absolutely. Just as important as if you're checking to see if a
bank offers the type of program you do. For example, not all banks
do VA loans. If you're a veteran of the military service, that's an
excellent program. It's 100% financing, they don't have the
mortgage insurance on that program, they're a little more lenient
on credit, because they understand someone that's gone out of the
country to fight for their country literally sometimes loses
control of the ability to make their payments and that kind of
thing. So it's a great program for military folks.
Jeremy:
Okay. Lastly, is there really anything else that folks would need
to do as a part of this program, they're going to their lender,
they're making sure that the programs fit, they're talking about
their income, making sure that their income fits, they are going to
the different programs, potentially looking at more than one. Is
there anything else that they would need to do as a part of this
process that would be important for them to know?
Kevin:
No. Absolutely not. That's probably the most important thing, just
like you want to research lenders when you're trying to make a
decision. Maybe not every lender in one area, but at least choose
two or three to see what their rates are, what their closing costs
are, if they have these programs. All of the aspects of borrowing
money, it's really important to make sure you're getting the deal
you want and that you're qualified for it, and they offer what you
need to do as far as down payment assistance or any other type of
aspect of mortgage lending.
Jeremy:
Okay. Do they have to pay this down payment assistance back in any
way? Is it a loan of some kind? Is there anything associated with
that?
Kevin:
That's a great question. No, it's actually forgivable. Both the HOP
program and the HAND money, for the city of Bloomington, are
forgiven over a five year period. They forgive 20% of the down
payment assistance. After you've owned that home for five years,
you don't owe it back. So you have that equity in your property at
the very beginning, and ultimately, it's forgiven.
Jeremy:
I see. So you can't turn around and sell the house three months
later and essentially get that money back out. That's sort of how
it's set up. It's forgiven over time.
Kevin:
They would prorate how much you owe them back at whatever point you
might pay it off if it's early.
Jeremy:
All right. There it is, the down payment assistance program could
get you up to $13,000 for the down payment on your house. If you
think you're eligible, or potentially eligible, the first step to
take is to go talk to a lender in your town and ask them about
their down payment assistance programs for the type of loans that
they offer. Look for them to talk about local programs in your
city, state level programs, and federal programs, and ask them if
you can combine those programs together, and then ask them exactly
what steps you need to take to get that down payment assistance.
What an awesome, awesome thing to have available to you if you're
in an income bracket that makes sense to have those things.
Thanks so much to Kevin Cade for sharing that information with us.
If you want a comprehensive online course that walks you all the
way through the home buying process, we have created it for you.
There are checklists and videos and a private group just for
members. You can find all of this at NewHomeBuyersGuide.net. If it
isn't the best bit of home buying advice you've ever experienced,
we will gladly refund your money, but really, when you see the
price, even a third of the information we provide and the community
that is behind that pay wall would be 100% worth it.
Until the next time, happy home buying.