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One of the most interesting and underutilized programs are local down payment assistance programs.
What is a Down Payment Assistance Program (DPA)?
Pros of Down Payment Assistance Programs
Cons of Down Payment Assistance Programs
A property that uses city funds (like a DPA) becomes a deed-restricted property. Many programs require that the unit remains owner-occupied, or it is no longer eligible for the second mortgage, and payments (or the entire loan) will become due immediately. So, rentals are out of the question.
Second, when you decide to sell the property, you may only be able to sell it to another qualified low to moderate-income buyer, and there may be a cap on how much you can sell the property for. Finally, if you are still living in the house after 30 years and haven’t begun paying the second mortgage at all, it could be due in full at maturity—and if you haven’t saved the money you would need to borrow on your home to fulfill that obligation!
That being said, that last sentence epitomizes my entire personal finance journey! If I can’t afford it with a 10% or 20% down payment, how do I justify getting an entire second mortgage because I wanted something nice and new? It is also the idea that the payments on this home are affordable, but your opportunities to build equity in this investment are limited, especially if resale is restricted to certain limits and only certain buyers.
Although I have decided not to consider a DPA, it can certainly make sense for many other buyers, especially those who might view their first purchase as somewhere they only want to live for a few years until they can sell the home for something larger or in a different area.
How much of a down payment did you place to purchase your home?
***Photo courtesy of http://www.flickr.com/photos/jollyuk/1989719848/sizes/l/in/photostream/