Advice To A First Time Home Buyer: Down Payment Assistance Programs Exist for Millennials

This article was originally published on June 6, 2022 and updated on July 15, 2024.

Is now the right time to buy a home?

As a millennial, you might feel as though this is the ideal time to start thinking about home ownership. However, many millennials face high entry barriers due to perceived challenges related to down payments. 

It certainly doesn’t help matters that property is expensive and interest rates aren’t coming down as quickly as many prospective buyers would like. In fact, the state of Washington has one of the highest average home costs in the country, with the city of Seattle home prices averaging more than $884 000 according to Zillow.

But don’t let these challenges scare you off.

If you’re a millennial looking to start your journey as a homeowner, down payment assistance could be the route to take. Seattle’s Mortgage Broker is the local expert on the topic and we’ve put together this article to help inform you of your options and guide you through the application process.

Down Payment Assistance

Down payment assistance is exactly what it sounds like: help for potential homeowners to find the required capital in order to achieve a down payment on a home. 

This allows qualified first time homebuyers the opportunity to own a home, despite the high costs found in the current market.

How Much Down Payment Is Required For a Mortgage Loan?

Many people think that the down payment on a home has to be 20%, but that isn’t always the case. There are options available to bring down payments to as low as 3.5%.

In 2024, the average down payment in the United States is actually 13.6% of the total purchase price of the home. 

Thankfully, there are measures in place to reduce the down payment required for some lenders for eligible homebuyers in order to make the home buying process more accessible. The following programs provide payment assistance:

• FHA Loans – 3.5% of mortgage value as a down payment
• Conventional 97 Loans – 3% as a down payment
• VA Loans – 0%
• USDA Loans – 0%

In addition to down payment assistance, there are other ways to bring down the initial cost of buying a home, including piggyback mortgages or grants and local and state down payment assistance programs. Homebuyer education can help you to navigate which option is best for you. 

But with all these options, it’s important to remember that the down payment is not the only cost in a home purchase. Other closing costs must be considered, even when looking at down payment assistance programs.

What About 0% Down Payments?

In addition to the programs listed above, there are additional options that don’t require a down payment at all. 

But we recommend proceeding with caution when it comes to these options. Providing a down payment on your home purchase is almost always beneficial because it will lead to a smoother loan process and demonstrate your financial stability to a loan provider.

Here what that means: 

1. Lower Monthly Payments

Paying a percentage of the mortgage in advance will mean that the amount you pay in monthly payments is lower. This will give you a greater sense of freedom with less to pay on regular bills.

2. Fewer Fees

With any mortgage, there are closing costs that must be considered. Without a down payment, and sometimes even in the case of down payments lower than 20%, you will be required to pay mortgage insurance. This won’t be a huge sum, but it can definitely add to your expenses.

3. Improved Chances Of Approval

Getting a favorable mortgage loan can be tough at the best of times. Having the money available and being prepared to offer a down payment can make your quest much easier.

An Alternative to Down Payment Assistance Programs

If you don't qualify for the types of payment assistance options listed above and still need a down payment, there is another option: down payment loans.

Down Payment Loans

To simply describe a down payment loan, also known as a down payment assistance loan, you can think of it like a smaller mortgage alongside your home mortgage. 

Basically, it is a loan that will allow you to have the funds to put a down payment on your home purchase when you need it.

The details will differ depending on your specific situation, but there are currently three down payment loan options you can consider:

1. Concurrent Repayment Loan: This option requires you to start repaying the down payment loan at the same time as your primary mortgage.

2. Deferred Repayment Loan: With this loan, you are not required to start repaying the down payment loan until one of the following occurs:

• You pay off your initial mortgage.
• You refinance your primary mortgage.
• You sell the property.

Grants may be available as well, often specifically for first-time homebuyers.

3. Forgivable Loan: This type of loan can be forgiven over time. For example, a percentage might be forgiven at the 5-year, 10-year, and 15-year marks. However, if you pay off your primary mortgage, refinance, or sell the house before the forgiveness period ends, you will need to pay all associated fees.

Remember, when considering a payment assistance program loan, interest rates will apply. 

That’s why it’s important —when looking at any type of loan or big financial decision — to consult with an expert about the risks and rewards involved.

Things To Consider Before Seeking Down Payment Assistance

Before deciding on the right type of down payment assistance, you should ensure you meet the criteria. Your personal financial situation will, in most cases, be examined with these requirements in mind: 

• Income compared to the average price of the property.
• Capital you have in reserve (your own savings), should it be needed.
• Your credit score, which is relevant with virtually all types of loan.

Your application will have a better chance of receiving priority if you're stepping into homeownership for the first time or if it's been more than three years since you last purchased a property.

Property Requirements

Once you've chosen the right down payment plan that best fits your needs, your chosen property has to meet specific requirements too.

The property should be in a location that offers the specific down payment assistance program you are looking for. There are various areas across the US that are referred to as ‘target areas’, meaning that many programs are in place for that specific location. Seattle is one of them due to high local living costs.

First Time Homebuyer Education

Buying a home is an exciting time, but it can also feel overwhelming, especially for first time homebuyers. Educating yourself on the homebuying process allows you to make informed decisions and avoid common challenges.

That’s why homebuyer education programs are a great resource.

These programs provide valuable information on the steps to purchasing a home, from budgeting and saving for a down payment to understanding mortgage options and closing costs. They’ll also often include counseling sessions and workshops, helping you to navigate the complexities of real estate transactions. 

By taking advantage of these resources, you can confidently move forward on your journey to homeownership, knowing you have the knowledge and support needed to make sound financial decisions.

Start the Down Payment Assistance Process Today

Despite some entry barriers, there is good news for millennials and first-time homebuyers: Down payment assistance programs are available to help you turn your homeownership dreams into reality!

If you’ve carefully evaluated this article and decided that a down payment assistance plan is the solution for you, finding an accredited provider is the next step. 

Here at Seattle’s Mortgage Broker, we have years of experience with a variety of different lending programs. To get started getting onto the property ladder, it's best to discuss your personal situation and talk through available options with an expert. 

We offer free, no obligation quotes for your peace of mind and financial success. Get in touch with our friendly team today!