Central Texas Real Estate Blog

What is Down Payment Assistance?

The hardest part of the home buying process is saving up the down payment. The typical down payment for a home is 20% of the asking price. Many people cannot afford a large down payment, and do not know there are many down payment assistance programs to help them realize their dream of home ownership. Most programs have strict guidelines regarding qualification, but if you don't have a large amount of cash to put down it is worth the effort to apply for a down payment assistance programs.  Use an online mortgage calculator to see how much you can afford.

Down payment assistance programs provide a set amount of money to qualified homebuyers. Some programs come directly through the lender, a local or state Housing Authority program or a nonprofit organization. These programs provide money to home buyers to cover the cost of down payment or closing costs.

Down payment assistance may either be an interest-free loan, a grant, or a debt that can be paid in the future. Assistance in the form of a delayed payment loan usually requires that you use the home as your principal residence for a period of time to avoid early repayment. This means that the loan would have to be paid in full if you sold the property or at the time of completing the mortgage payments.

If you are a home buyer and would like a caring expert every step of the way, contact the experts at Crawford Realty Group to learn more or arrange a showing. If you'd like to have homes for sale in these areas emailed to you, sign up for our free home finder service and specify which types of homes you'd like to receive updates about.

Do I Qualify?

Each state and agency has its own rules for determining eligibility. Qualification is generally based on income. It is usually at or below 80% of the area median income, though in a few places the limit can be as high as 120%.  Some programs are limited to first-time home buyers, and there are programs that require the potential home buyer to attend classes to educate themselves on mortgage processes and the financial responsibilities of home ownership. There are special programs for healthcare workers, veterans, educators, public safety and people with disabilities. Most borrowers need a credit score of 620 to 660 or above for to get 3.5% in down payment assistance, and those wishing to qualify for up to 5% need a credit score of 661 or higher.

Down Payment Assistance in Texas

There are several resources in the state of Texas to receive down payment assistance and also affordable housing mortgage loans. The Texas State Affordable Housing Corporation is a nonprofit that has a program called the Texas Heroes Home Loan program. This program is for teachers, firefighters, EMS Personnel, police, correctional officers and veterans.

For Texas home buyers with low to moderate incomes they also offer the homes Sweet Texas Home Loan program. The benefits of these programs is down payment assistance of 3 to 5% of the loan amount, you are not required to be a first-time home buyer, you are not required to live in the home for any set period of time, a 30-year fixed interest fixed interest rate mortgage loan and several loan options available throughout various Texas at participating lenders.

The Southeast Texas Housing Finance Corporation is a constituted non-profit and is considered to be a political subdivision of the State of Texas. Their mission is to create and promote affordable housing opportunities for the citizens of Texas by issuing tax exempt single-family mortgage revenue bonds. SETH offers a program called the 5 Star Texas Advantage Program. It provides home buyers with several options to meet their needs. Assistance comes in the form of a grant with no repayment required to cover down payment and closing costs.  The maximum amount of a grant from SETH is 6% and is based on the final loan amount.

This grant does not have a first-time home buyer requirement the program provides a 30-year fixed rate mortgage the mortgage options are FHA, VA, USDA and conventional loans. There is no penalty for prepayment or federal recapture tax on the mortgage loan. This program is available throughout Texas but residents with the exceptions of Travis County, the city limits of El Paso and Grand Prairie.

Potential home buyers will also be required to complete the SETH online homebuyer education course.  Other buyer qualifications are a minimum FICO score of 640, meet the program income limits, obtain mortgage and grant approval from a program lender and the maximum sales price of the home must not exceed $453,100.

The Texas Department of Housing and Community Affairs has My First Texas Home down payment and closing cost assistance of up to 5% of the mortgage loan. In order to be eligible for the My First Texas Home program, the applicant must be a first-time home buyer or may not have owned a home as a primary residence within the past 3 years. Their income should not exceed the program’s income limit guidelines, the property must meet the purchase price limits and  be able to meet the minimum credit scores for FHA VA and USDA loans of 640. 

The Travis County Housing Finance Corporation offers the Hill Country Home down payment assistance program. With this program, eligible low-to-moderate income home buyers can purchase a home anywhere in Travis County including the City of Austin.  Qualified applicants will be granted assistance to cover down payment cost. This assistance comes in the form of a grant that does not require repayment.

To be eligible for this down payment assistance plan applicants must have a minimum credit score of 640, qualifying income may not exceed 140% of the area median income, first time home buyers must successfully complete a HUD approved homebuyer education course and the purchase price must be under the limit determined by the lender based on the borrower's credit, income, debt to income ratio and other factors.

Most of these programs can be used in conjunction with Mortgage Credit Certificate for first-time home buyers. The MCC has many benefits, it can help save thousands of dollars over the life of your mortgage loan, and it can save up to $2,000 every year as a special tax credit based on mortgage interest paid.

The state of Texas offers many more down payment assistance programs, ask your realtor and lenders for information regarding these programs. There is no need to let the cost of the down payment stand in the way of owning a home!