Last Updated on January 18, 2024 by Luke Feldbrugge
There are options for teacher down payment assistance, and it’s good to learn the options. The down payment on a home is one of the most significant obstacles to getting a mortgage for first-time homebuyers. And, if you’re a teacher who has purchased a home before, even with equity in your current home, it’s still nice to save money when you can. A mortgage down payment requires you to have a sizable amount of cash or equity before you can begin the mortgage application process. So, let’s take a look at some options that offer teacher down payment assistance.
Mortgage Loans that can Provide Teachers Down Payment Assistance
Many “no down payment” programs are from the federal government, but the federal government does not give home loans. What it mostly does is provide loan guarantees, which is like mortgage insurance that tells the private lender or mortgage broker (who will give you the loan) that the United States is standing behind your loan in case you default. That takes a lot of pressure off. It removes a lot of risk for the mortgage lenders and gives them more confidence in loaning you the money. That, in turn, expedites the mortgage process.
Here are three standard mortgage loans that can provide government backing:
Military Veterans Who are Also Teachers: VA Loan Guarantee
The Veterans Administration, or VA loan guarantee is probably the best of the federal mortgage programs in terms of benefits. Of course, you need to be a veteran, an active duty service member, a Reservist or a member of the National Guard to be eligible. If you are a veteran who is now an educator, this is the teacher down payment assistance for you. The benefits of a VA loan guarantee eclipse the other programs quite a bit. The three advantages that provide the most financial benefit are:
- No down payment is required for the mortgage
- No private mortgage insurance is needed
- Lower interest rates than conventional loans
Other benefits include:
- The VA loan guarantee limits closing costs you can pay.
- There is no minimum credit score required (that may come up later on with your mortgage lender).
- You can use the benefit throughout your lifetime.
- VA home loans are assumable, so you can sign your mortgage over to your buyer.
- There is no maximum loan amount, but the VA does have limits to their guarantee.
- The VA does not have a maximum debt-to-income requirement (but it does have guidelines for your mortgage lender).
- The VA home loan guarantee can be used for single-family homes, condos, manufactured homes, new builds and home improvements like solar panels.
- VA loan guarantees may also be used by the surviving spouses of military service members killed in the line of duty.
There are some costs, and one of them is the VA Funding fee, which helps fund the mortgage program. For the first time home buyer, the federal agency lowers its funding fee (2.15% of the total loan). The VA funding fee is a one-time fee you pay to get the VA loan, but it can be folded into your monthly mortgage payments. The funding fee is waived for veterans with service-related injuries, disabilities or recipients of the Purple Heart.
If you want to know the eligibility requirements for the VA loan guarantee, based on your service history, the agency has a very useful chart that explains it.
Teacher Down Payment Assistance from the USDA: Help for Rural Educators
USDA loans are for teachers, and others, who want to buy a home in a rural area. The agency defines rural areas as towns with less than 35,000 people, and it includes more than 90% of the United States.
The USDA Loan guarantee includes the following benefits:
- No down payment.
- Loans that typically have lower interest rates.
- USDA loans do not have a minimum credit score, however, your private lender will probably ask for a score around 640.
- You can use it to build a new home or buy an existing home. The loan guarantee also allows you to renovate or move an existing home.
USDA loans are assumable.
The USDA loan guarantee has some fees at closing. Its upfront guarantee fee costs 1% of the loan. Then the additional annual fee costs 0.35% of the loan amount. These can be rolled into the mortgage so you don’t need to pay the money up front. There are also upper income limits on these loans so your family income can’t exceed 115% of your area median income. The home must be your primary residence.
Since about one third of the teachers in the U.S. (32%) work in rural schools, this program should be a great teacher down payment assistance for educators and school administrators.
Teacher Down Payment Assistance Through the FHA Loan Program
Ok, you’re not ex-military and you’re not rural. Is there anything for you? The FHA loan guarantees are for everyone else, as long as you are a low-to-moderate-income teacher with a low credit score. There is a down payment for these, but it’s very low. The relaxed credit requirements make this loan guarantee a good option for educators who are searching for teacher down payment assistance.
Some of benefits of the FHA loan guarantee are:
- Low Down payment – The FHA only requires a down payment of 3.5%, while typical mortgages ask for 20%. Your down payment percentage may be higher if your credit score is below 580.
- Low credit scores – This program was specifically designed for those who have a low credit score and cannot get a loan from conventional lenders.
- Assumable mortgage– FHA loans are assumable. An assumable loan lets you sign your current mortgage over to a potential buyer without a lot of the paperwork.Most importantly, the buyer assumes your loan at the interest rate you got when you bought your house. That’s a significant advantage for a seller in a real estate market where interest rates have gone up dramatically (for example, this year).
The FHA process does include two fees at closing:
- The Upfront Funding Fee is a one-time fee that is 2.25% of the total financed amount. It’s paid at closing, but it can be folded into the mortgage and paid over time.
- The Mortgage Insurance Premium is an annual fee you will be paying for the life of the loan (the current rate for MIP is 0.85%). It can be rolled into your monthly mortgage payments.
Good Neighbor Next Door: Half Off for Teachers
While this is not really a down payment assistance program for teachers, it does take a lot off the top in terms of being able to afford a home. The U.S. Department of Housing and Urban Development will sell you a house for 50% off. It’s called the Good Neighbor Next Door and one of its goals is to make the home purchase more affordable for community heroes such as:
- Teachers, educators and school district employees
- Police officers and law enforcement employees
- Firefighters and first responders
- Emergency medical technicians and workers in the emergency medical services field
Eligibility criteria for properties in the Good Neighbor Next Door program are in locations identified as revitalization areas. That means they are in neighborhoods where:
- Household incomes are lower than average..
- Homeownership is low compared to the surrounding area.
- Foreclosures are higher than typical for the location.
These neighborhoods are looking for both economic and community development, and a good way to encourage that is to make available properties available to heroes at a drastic discount. If you get one of these homes, you must agree to live there for at least three years.
With the Good Neighbor Next Door program, the properties are offered first to Good Neighbor eligible applicants seven days before they go on the general market.
Down Payment Assistance Programs and Grants for Each U.S. State
In addition to these government loan guarantees and HUD’s Good Neighbor Next Door program available at the federal level, there are many states in the union that offer state teacher down payment assistance programs. These programs and special grants have their own criteria and requirements to qualify for receiving their assistance, but it’s well worth investigating online if it can save you hundreds, if not thousands of dollars on your down payment. Here is a good starting point for down payment assistance programs and grants by state. Also, be sure to check with your own local government to find out if there are other teacher down payment assistance programs available.
Our local Homes for Heroes mortgage specialist can help you take advantage of these federal and state programs, and assist you with finding any additional teacher down payment assistance options offered in your community. Simply sign up to speak with a member of our team who can connect you with our local mortgage specialist to get your questions answered.
The HELPER Act: Teacher Down Payment Assistance on the Horizon?
A new program that is designed to provide teacher down payment assistance is currently pending in Congress. It’s called the HELPER Act. The name stands for: Homes for Every Local Protector, Educator and Responder. It is being compared to VA loans, but it’s designed to help community heroes like teachers. It’s benefits may include:
- No down payments
- No private mortgage insurance (PMI)
Those two benefits are strong selling points for the VA loan guarantee, so extending them to teachers will save you thousands of dollars, both up front and over the life of your mortgage. Federal loan guarantees often charge an upfront funding fee (in this case, 3.6%), and the legislation for this one includes that as well.
The bill has bi-partisan support, and the President also supports it. If you are a public school teacher or educator, this is a bright spot in an otherwise tough housing market. The bill is waiting for action in the House Committee on Financial Services, so don’t be afraid to contact them and tell them your views on it.
Pros and Cons of Down Payment Assistance Programs
There are pro and cons to down payment assistance programs. The biggest issue with these grants and special programs is you must meet the requirements to receive their benefits. The biggest pro of course is if you do qualify, at a minimum your down payment would decrease, and in some cases it could be reduced to nothing!
A couple other examples of some pros and cons are the grants or forgivable loans, which do not need to be paid back. Big pro. A con for down payment assistance is some may come with a higher interest rate on the loan. However, a higher interest rate on less money is used for a down payment is standard practice when it comes to getting a mortgage with a private lender. It still makes up for the cash you do not have today.
Teacher down payment assistance programs are a great way to reduce or eliminate your down payment requirements when seeking a new home mortgage. However, even with the assistance of these programs, you may still find yourself needing to save for a down payment. So, we’ve assembled some tips to help you save for a down payment.
Additional Savings: Average of $3,000 from Homes for Heroes
For more than 20 years, Homes for Heroes has assisted teachers with buying, selling and refinancing their home or mortgage.
If you work with our local real estate and mortgage specialists to buy, sell or refinance; we provide significant savings after you close on a home or mortgage. We refer to these savings as Hero Rewards, and the average amount received after closing on a home is $3,000, or $6,000 if you buy and sell! The best part is the savings with Homes for Heroes is typically able to be provided in addition to any of the down payment assistance grants or programs you may qualify to receive. And, that adds to to incredible savings.
Simply sign up to speak with a member of the team. There’s no obligation. After you sign up they will contact you to ask a few questions and help you determine the appropriate next steps for you. When you’re ready, they will connect you with our local real estate and/or mortgage specialists in your area to assist you through every step and save you money when it’s all done.
It is how Homes for Heroes and our local specialists thank our country’s teachers, like you, for your dedicated and valuable service.