Down payment assistance programs available in the Charlotte area

If you are a first time home buyer wanting to purchase a home in the Charlotte NC area, but have limited funds for a down payment and less than perfect credit, combining a government-insured loan with a down payment assistance program could open up the door to home ownership for you and your family. In order to qualify for a conventional loan, most lenders require home buyers to have an excellent credit score and to contribute between 3 and 20% of the home purchase price towards a down payment from their personal funds. A good credit is usually a 720+ score. For a $300,000 home for example, the down payment required by a lender for a conventional loan could be as much as $60,000. A home buyer is also responsible for paying closing costs associated with the purchase of a home which usually amounts to 4% to 6% of the purchase price. If you have been saving for a while and have good credit, that’s fantastic! You can choose to borrow with a conventional loan and put a large down payment to avoid being charged PMI. However, for people who want to own a home but cannot qualify for a conventional loan, a government-backed loan combined with a down payment assistance program can be the key to owning a home in Charlotte area.

Combining down payment assistance programs with government-insured loans

Down payment assistance programs and government-insured loans work well together. The department of Housing and Urban Development (HUD) and the United States Department of Agriculture (USDA) are the two government agencies that insure mortgage loans in an effort to make home ownership more affordable and accessible. Lenders who offer government loans like FHA and USDA loans are guaranteed to get compensated by the government in the event a borrower using a government-insured loan defaults. Without the government insuring some mortgage loans, many individuals and families would be unable to purchase a home. Government insured loans are fixed rate loans with low interest rate and low or no down payment requirements. Keep in mind that even though lower credit scores are accepted to qualify for a government-insured loan, most lenders add their own layers of risk above the government-insured loan requirements. In other words, lenders may require higher credit scores to qualify for an insured loan that the government would otherwise. Learn more about FHA loans.

A FHA loan combined with a down payment assistance program could allow you to purchase a home with little or no money down. How does that work? Banks are willing to take on more risks if a loan is “insured” by the government. There are two types of government insured loans – FHA loans and USDA loans. FHA loans only require 3.5% down and a credit score as low as 640 (as of April 2022), whereas USDA loans are 100% financing – in other words, no down payment –  which means that the full purchase price of a home is financed over 30 years. Down payment assistance programs (aside from USDA loans), work in conjunction with FHA insured loans. Basically, down payment assistance programs provide home buyers funds to cover the 3.5% FHA down payment, and in some cases, funds to cover closing costs (closing costs are usually anywhere from 3% to 5% of the purchase price).