One of the most useful programs for First time home buyers is down payment assistance. I utilize, for the most part, Colorado Housing and Finance Authority for my down payment assistance needs. There are several agencies that offer down payment assistance; many of them are county specific.
So, how does it work? Well, I am glad you asked. Basically, the down payment assistance at CHFA(Colorado Housing and Finance Authority) is a 3% grant towards your down payment or closing costs. Yes, you read that right, grant. Meaning, you do not have to pay the funds back. CHFA in the years past offered down payment assistance in a form that would have to be paid back when the home was sold or refinanced. It was known as what is called a “Silent Second”. Silent meaning that there were no active payment that needed to be made and Second meaning that it was in second lien position on title.
Ok, so there giving out free money? Not exactly. The grant itself really is money that you will not have to pay back, but you will be paying for that in different ways, let me explain. The first disadvantage of down payment assistance is that the rates on these programs are higher than programs without down payment assistance. They markup is usually about .5%. The other disadvantage to down payment assistance is the closing costs are higher. An origination fee is added to these loans which is normally not present in other loans.
So, is it a good deal or not? It depends. For some it is a fantastic option because the closing costs are several thousand less than what they would commonly be. This in some cases is the only way to make a deal work. Also, it may be that the increase in closing costs and interest rate only account for a small increase in payment. The bottom line is; we will look at everyone’s situation on a case by case basis, Identify the pro and cons and find out what is right for you.