Whether you’re looking in Belltown or Bellevue, Bothell or Burien, buyers need to save up a whole lot of money before seriously considering a first-time home purchase. True? Not exactly.
There are programs established by state and local governments that provide buyers – mostly first-timers – with assistance to make a down payment or meet closing costs. The funds are typically repaid when buyers eventually sell the home or when refinancing their mortgage.
While their popularity is increasing, homebuyer assistance programs are still an afterthought for many who could have benefitted from this invaluable financing option. I am here to tell you there is money “sitting on the table” ready for eligible buyers.
There are more than 2000 programs across the country delivering thousands of dollars – from $5,000 to $50,000 or more – in assistance to worthy buyers. The average income of a typical state assistance borrower is a bit under $60K and they typically seek a mortgage of about $170K. No, the programs are probably not a good fit for most high-income tech workers seeking a luxury condo in downtown Bellevue.
Here are three of the most common paths to take when thinking about seeking financial assistance:
1. Down Payment Assistance Programs
About three-quarters of all recipients use this category of assistance, which includes help with the down payment and closing costs. Down payment assistance covers aid from federal, state, county or local government agencies, non-profits and employers. It comes either in the form of a grant, which is a gift, or as a second mortgage with different payback plans, including 0% interest loans due when selling the home.
There are even second mortgage programs that forgive some or all the amount. When and how much of that down payment help is forgiven may vary, but it’s common for a percentage of the loan to be removed from the books each year for a predefined period. However, if the program’s conditions are not met – such as, when the buyer moves – the loan must be repaid, sometimes with interest. (Read the fine print!)
2. Affordable First Mortgages
Many larger housing finance agencies, particularly at the state level, offer first mortgages to accompany their down payment assistance programs. They are often funded by state housing finance agencies and may subsidize portions of the interest to offer rates below what the normal market can provide, helping to lower buying costs and monthly payments. They may also have reduced closing costs and fees, as well as waived mortgage insurance requirements.
The USDA also has two first mortgage programs – the Rural Direct Loan and the Rural Guaranteed Loan – both primarily used to help low- and moderate-income buyers purchase homes in rural areas. Funds can be used to acquire, build, repair, renovate or relocate a home.
3. Mortgage Credit Certificates (MCC)
This annual federal income tax credit is designed to help first-time buyers offset a portion of their interest on a new mortgage as a way to help qualify for a loan. As a tax credit, the MCC helps reduce taxes dollar for dollar, year after year.
The mortgage credit allowed varies depending on state or local government issuers, but (in most cases) it is capped at $2K by the IRS. MCCs can often be used alongside another down payment program. (As of this writing, Washington is not supporting this program but check with the state or lenders for the latest.)
It’s worth adding that “first-time buyer” isn’t exactly the best term to describe eligibility status. A first-timer for assistance is generally a non-homeowner for the last three years. Also, about 40% of the programs across the country do not have a first-time buyer requirement.
You can learn more about financial assistance here and check out the Washington State Housing Finance Commission, which offers down payment loans that average about $10K for families who make $180K a year or less and have good credit. The City of Seattle also has an assistance program that offers up to $55K in financial aid. (It was so popular in 2023 that the city ran out of funding. Wait till next year!)
Buyers have more options than they probably realize when developing a strategy to purchase a home. They just need to educate themselves and talk to experts in the field who are looking out for a buyer’s best interests.
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