First-Time Buyers Can Get Down Payment Help in One of the Cheapest States To Buy—but Trump’s Freeze on Loans May Derail Homeownership

by Kiri Blakeley

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While the homeownership dream may seem more out of reach than ever—exacerbated by high mortgage rates (hovering at 6.3% nationally) and high home prices—first-time borrowers are in a unique position to get financial help to make their dream come true.

“First-time homebuyers programs are playing a pivotal role in this market,” says Shmuel Shayowitz, president of Approved Funding Corp., a nationwide residential mortgage banker.

“Many new buyers are turning to various state and county programs to help bridge the gap regarding down payment assistance, credit blemishes, affordability, and the like.”

One of the cheapest states to buy in, Indiana, has several first-time buyer assistance programs, administered by the Indiana Housing & Community Development Authority (IHCDA).

It is currently unclear how President Trump‘s freeze on federal loans and grants might affect these programs.

“We could see a screeching halt to resources for child care, housing, police officers, opioid addiction treatment, rebuilding roads and bridges and even disaster relief efforts,” U.S. Sen. Patty Murray, the top Democrat on the Senate Appropriations Committee, said Tuesday.

Government agencies have until Feb. 10 to justify federal funds. The executive order does spare Medicare and Social Security and “does not include assistance provided directly to individuals,” but it is unclear what exactly that means.

“I would guess the specific grant programs for individuals like housing is not affected by this order (yet),” Jerry Devlin of Assume Loans told Realtor.com®. “It could affect the agencies that support them, however, like homebuyer counseling services required to educate and certify eligibility.

“The [downpayment assistance programs] are funded by the housing agencies and most likely would not be affected, at least in the near future,” he adds. “But there are non-profits that support these initiatives that could lose funding, like homebuyer education. I think we’ll know more in the next few days and weeks.”

Fred Goncher, of Backyard Mortgage in New York, points out: “Most housing grants are done on a state or local level, so a federal executive order will have little effect.”

Realtor.com has reached out to the IHCDA for comment.

Homebuyer assistance programs in Indiana

The Hoosier State has the sixth lowest median monthly mortgage payment in the country, at $2,066, compared to the national median is $2,971.

“These programs are great opportunities for first time homebuyers,” agrees Devlin, who is also the founder of LendAid, which connects buyers with loan officers. “In most states, a new buyer can get the state to provide at least 5% of the down payment via a DPA [down payment assistance].”

Location is everything. The median list price in the state capital of Indianapolis is $260,000—36% less than the national median of $402,502. Meanwhile, the more expensive suburb of Lakes of Four Seasons is slightly above the national, at $405,000. This gated community is in the northern part of the state and about an hour outside of Chicago.

This three-bedroom home in Indianapolis is listed for $435,000.

Home help

Whether you qualify for any of the first-time homebuyer or veteran programs is determined by a combination of income, credit score, and debt-to-income ratio and varies by county.

A borrower can qualify for 2.5%, 3.5%, or 6% down-payment assistance, based off the lesser of the sales price or appraised value of the home being purchased—and depending on the type of loan financing, says the IHCDA website.

The assistance comes in the form of a second mortgage but carries no interest and no payments. If the borrower chooses to refinance or sell within the forgiveness period, then the loan must be repaid in full.

If you’re in the Hoosier State, or are thinking of moving and feel you qualify, you can find a lender here.

This four-bedroom, single-family home in the pricier gated community of Lakes of Four Seasons is listed at $529,900 and is an hour outside of Chicago.

Other states offer assistance, too

All 50 states have first-time homebuyer programs, and they can vary wildly. The assistance can come in the form of lower rate mortgages, tax credits, grants, or cash funds to be paid back later.

They also usually come with certain conditions, such as price and income caps and required educational courses.

“An important element of many state programs includes the stipulation that the applicants complete a free homebuyer education course,” says Jeff Adams, a real estate investing strategist at Home Investors Zone. “The programs are easy, quick to complete, and cover the essential details that every buyer should have mastered.”

Other programs focus on blighted urban areas, where first-time buyers can be integral to rejuvenating dilapidated neighborhoods.

Check your state for the types of programs you might qualify for. Government lenders Fannie Mae and Freddie Mac also offer assistance programs.

Do you have to be a first-timer to get a deal?

The short answer is no.

The IHCDA offers programs that do not require you to be a first-time homebuyer; see its website for more information.

Shayowitz notes that first-timer programs aren’t always going to offer up the best deals, and buyers should shop around with local independent lenders.

This unique 17-room, castlelike home built in 1889 is on the market for $949,900.

“A first-time homebuyer is not always going to get better rates and terms just because they choose one of these first-time homebuyer programs,” he says. “There are programs with aggressive rates and terms available for the average homebuyer that offer low down payments and flexible qualifying guidelines.

“Ideally, you should do extensive research and shop around with local independent mortgage lenders and brokers who have access to a myriad of programs that can guide you in finding the best options for your particular circumstances,” he adds.

Doug Perry, strategic financing advisor at Real Estate Bees, agrees that first-time buyer programs are for the subset of buyers who have lower incomes, but the rest are not out of luck.

“A problem in the home loan industry is borrowers self-disqualifying themselves,” he says. “They get just enough knowledge to come to the inaccurate conclusion they don’t qualify and stop there.

“My borrowers just about always think they need a much larger down payment than is actually required and are pleasantly surprised to learn about the low down-payment loan options.”

And still, one lender thinks that assistance programs don’t do much to help buyers at all.

“The vast majority of first-time homebuyer programs are designed never to be used and to make politicians look good,” says Goncher. “There are too many roadblocks to practically be used, given the market conditions we are in.”

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