Homeownership is the centerpiece of the U.S. economy, and it’s important in local economies, too.
Communities benefit when new home buyers move in. New buyers spend money in local stores, improve residential property, and pay taxes into the municipality. And, in a lot of U.S. communities, to make buying a home there more attractive, local governments pay subsidies to incoming buyers.
The subsidies are called Downpayment Assistance Programs, and they come in five forms:
- Cash grants
- Closing cost credits
- Interest rate reductions
- Down payment loans
- Tax bill credits
Cash Grants For Your Down Payment
Cash grants account for the majority of down payment assistance programs. The average cash grant for a first-time home buyer is $10,000.
When you receive a cash grant, there’s no requirement that you repay it. However, some downpayment assistance grants only become “free money” after you agree to purchase and live in your new house for a certain number of years — usually five.
Should you move out before the five years are up, the city will require full repayment of the grant monies.
Closing Costs Credits
Closing cost reimbursement is another form of downpayment assistance. It’s a one-time cash grant, paid at closing, to offset some or all of the costs with your purchase.
Closing cost grants don’t have to be repaid, but generally require home buyers to purchase and live in their homes for a minimum of 3 years. Should you move out before the three years pass, the grant must be repaid.
Interest Rate Reductions
Some cities provide home buyers with cash to be used for paying discount points at closing.
Discount points are one-time fees paid to your lender in exchange for a lower interest rate. For example, if your quoted mortgage rate is 3.50 percent, after paying discount points with cash from your city, your rate might go down to 3.00 percent.
There are also downpayment assistance programs that give interest-free loans to buyers for making a downpayment on their first home. Loan terms are usually favorable – 0 percent interest with the loan only due when the home gets sold in the future.
Tax Bill Credits
Tax payment reductions are a variation on the down payment assistance theme.
When you get a tax payment reduction from your city, you get favorable, long-term tax treatment as the owner of a house, which lowers your annual tax bill and helps you save money.
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