The cost to live in Hawaii can be steep. As a first-time homebuyer, you may qualify for Down Payment Assistance from a government-funded program.
What is first time home buyer down payment assistance?
When purchasing a home, you will need cash up front, a down payment, to close the deal. This amount is a percentage of the total home price. Conventional loans require a 20% down payment to avoid paying mortgage insurance in addition to your monthly mortgage payments. In Spring 2022 the median home price in Hawaii County was $529,000, a 20% down payment would be $105,800. Saving that kind of money can seem like an impossibility for most people. This is one of the major hurdles that many first-time home buyers experience. Down payment assistance can help you to overcome this hurdle by reducing or eliminating the down payment requirement.
USDA Loan Programs
The USDA Office of Rural Development offers two housing assistance programs. To qualify your home has to be in an eligible “rural” area. This includes the vast majority of Hawaii County. The map of Big Island shows what areas are considered “rural”- only the tan area around Hilo is not considered “rural”.
The Single Family Housing Guaranteed Loan Program offers a no money down loan for qualified applicants. This loan can be used to “purchase, build, rehabilitate, improve, or relocate a dwelling with 100% financing.”
To qualify you must meet the following criteria:
- Income at of below 115% of median household income for your area. According to census.gov, that is $65,400 for Hawaii County. Income qualification is related to the number of members in your household and your specific sources of income, to find out if your household income qualifies go here.
- The home has to be your primary residence.
- You must be a U.S. Citizen, non-citizen, national, or Qualified Alien.
The USDA Single Family Housing Direct Home Loan Program is available to low and very-low income applicants. This program provides payment assistance thus reducing the mortgage payments for a short time.
To qualify you must meet the following criteria:
- Applicant must be considered low-income for the area where they wish to buy. In Hawaii County low income is considered at or below $68,500. Very low income is considered below $42,800.
- Be without decent, safe, and sanitary housing. Read an explanation what this means here.
- Be unable to obtain a loan from other sources.
- The home must be your primary residence.
- Meet citizenship or eligible non-citizen requirements.
VA Loan
Veterans, active-duty military, reservist, or eligible surviving spouse of a veteran all qualify for a zero down payment mortgage using a Veteran’s Administration loan. VA loans are provided by private banks and lenders but are guaranteed by the Veteran’s Administration which allows the lender to provide benefits like no down payment requirement, no mortgage requirements, limited closing costs, and competitive interest rates.
FHA Loans
The Federal Housing Administration works with private banks and lenders to provide guaranteed loans for home buyers https://www.hud.gov/buying/loans. Being a first-time home buyer isn’t a requirement for an FHA loan. FHA loans allow applicants to pay as little as 3.5% of home’s purchase price as a down payment. FHA loans also have a lower credit score requirement than conventional loans. Conventional loans typically require a credit score of at least 620. A credit score as low as 580 only requires a down payment of 3.5%. Lower credit score between 500-579 will require a 10% down payment but are still eligible for FHA guarantee. A low-down payment through an FHA insured loan will still require mortgage insurance as it would through a conventional loan. You can estimate what your mortgage payment might look like with this FHA loan calculator.
First Time Home Buyer Down Payment Assistance programs can help make home ownership more accessible without having to save up to 20% of the home cost. Especially when home prices are increasing so quickly waiting years to save a 20% down payment can mean potentially locking yourself out of home ownership. Down payment assistance could be the right solution for you and your family.
Once you’re ready to start your hunt for a new home on Hawaii Island, Jade Halama is here to help.