How can you minimize risks when using down payment assistance programs?

1 Know your options

There are different types of DPAs available, such as grants, loans, tax credits, or employer programs. Each one has its own eligibility criteria, repayment terms, interest rates, and benefits. Before you apply for any DPA, do your research and compare your options. Look for reputable sources of information, such as government agencies, nonprofit organizations, or certified housing counselors. Avoid any DPA that charges upfront fees, requires you to sign over your title, or has vague or unrealistic conditions.

3 Budget wisely

Using a DPA can help you reduce your upfront costs, but it does not mean you can afford any home you want. You still need to budget wisely and consider your monthly expenses, including your mortgage, taxes, insurance, utilities, maintenance, and DPA payments. You also need to have some savings for emergencies, repairs, or unexpected costs. A good rule of thumb is to spend no more than 28% of your gross income on housing costs, and no more than 36% on total debt payments.

4 Maintain your credit score

Your credit score is a key factor in determining your loan eligibility and rate. Using a DPA can affect your credit score in different ways, depending on the type and source of the program. For example, some DPAs are considered as loans and will add to your debt-to-income ratio, while others are considered as grants and will not. Some DPAs may require a hard inquiry on your credit report, while others may not. To minimize the impact of a DPA on your credit score, make sure you pay your DPA and mortgage payments on time, keep your credit card balances low, and avoid applying for new credit.

5 Review your situation regularly

Using a DPA can be a great way to achieve your homeownership goals, but it may also limit your flexibility and options in the future. For example, some DPAs may restrict your ability to refinance, sell, or rent out your home, or may require you to repay the full amount if you do. Some DPAs may also lose their value or expire over time, or may become unaffordable if your income or interest rates change. To avoid any surprises or problems, review your situation regularly and evaluate your DPA performance, benefits, and risks. If you find that your DPA is no longer working for you, explore your alternatives, such as refinancing, modifying, or terminating your DPA.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?