Down payment assistance can help

Hundred dollar bills in shape of house

If you can qualify for an FHA loan, you may also qualify to get help with your down payment and closing costs.

Down Payment Assistance Programs are run by nonprofit organizations, and they will literally give you up to $20,000 to help you buy a home. It's not a loan. You never have to pay it back.

Nearly 103,000 borrowers, or about one-third of all buyers who got FHA loans last year, received their down payments through such programs. Here's how you can benefit:

Step 1. Get preapproved for a mortgage

Since DAPs work almost exclusively with FHA mortgages, find an FHA lender who will preapprove you for a mortgage based on your credit report and other financial considerations, such as income, debt and job stability. When you are preapproved, you will find out how much you can borrow and how much you'll need for a down payment.

Step 2. Apply for down payment assistance

Ask you lender what DAPs it works with. It will probably be one of the five major DAPs we'll tell you about.

Apply for assistance at the DAP's website. Since you are already preapproved for a mortgage, your application to receive a down payment grant requires only basic information. Because the grant does not have to be repaid, your debt load and credit history have little bearing on your ability to get assistance.

The nonprofit agencies that run DAPs set their own rules for who gets money and who doesn't. Consumer Debt Solutions, for example, prefers that its applicants have no more than $15,000 in the bank, while Partners in Charity only requires only that you get preapproved for a mortgage.

Step 3. Pick a home to buy from a seller who's willing to support the DAP

Most of the money you'll be given for a down payment is donated to the DAP by the seller.

Why would they do that? Because they know how hard it is for first-time or low-income buyers to come up with even a small down payment. Donating part of the money they make from the sale to a DAP to pass along to you assures them that prospective buyers will have the money they need for a down payment.

In 2006, for instance, the median price of a home bought with down payment assistance was $128,000. That's the price where half the homes sold for more and half sold for less. If a 3% down payment ($3,840) were required for the sale, the seller would donate that amount to the DAP plus a $500 to $600 fee.

Ask the DAP to put you in touch with an experienced real estate agent who knows where to find the best homes offering down payment assistance. In some areas, homebuilders are willing to work with DAPs, which would allow you to get payment assistance to buy a brand new home or condo.

Step 4. Close the deal

Once the terms of the sale have been agreed upon, the real estate agent or lender will notify the DAP and the down payment will be wired to either the title company or the escrow company -- whichever is handling the closing to complete the purchase.

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