How to get down payment assistance for your mortgage

A mortgage is like any other loan. The provider of the loan needs to confirm that you will be able to repay the loan and that you will also be willing to repay the loan. These are 2 different things, one speaks to financial ability and the other speaks to character.

To confirm these 2 things, the loan provider makes use of 2 tools:

1. Your down payment

2. Your credit score

Respectively.

Today we will focus on the downpayment aspect, to learn how to improve your credit score click here.

What is a downpayment?

Simply put, a down payment for a mortgage is the amount of money you pay upfront when buying a house, expressed as a percentage of the home's purchase price. It's typically required by the lender and can range from 3% to 20% of the purchase price. The more you pay as a down payment, the less you'll need to borrow, and the lower your monthly mortgage payments will be.

In the specific Nigerian context, financial institutions typically request a 20-30% down payment. To paint a clearer picture;

Home cost = N20,000,000

Minimum downpayment Percent = 25%

Downpayment = N5,000,000

This means that to pay for the home, the financial institution will provide N15,000,000 while you would be expected to provide the remaining N5,000,000 to make up the cost of the home you want to buy.

N5,000,000 is not chicken change. You need to start saving this money as early as you can, every N1000, or N5000 you put towards the downpayment goes a long way towards helping you reach the goal. Let's do some quick maths;

Assuming you earn around N200,000 a month from both your job and your side hustle. You decide to start saving 25% of your monthly income towards the downpayment so you create a special account and send N50,000 to this account every month

This means it would take you around 100 months to save your downpayment. I.e 8.3 years.

For ease of illustration;

Home cost = N20,000,000

Minimum downpayment % = 25%

Downpayment = N5,000,000

Monthly income = N200,000

Monthly downpayment savings% = 25%

Monthly downpayment savings = N50,000

No of Months to save downpayment= N5,000,000/N50,000 = 100 months

No of years= 100 months/12 = 8.3 years.

8 years is a long time, so what are the other options that can help you get your down payment without having to wait that long?

Well, you have a couple of options which ill list below before telling you which one is my recommended option for a first-time homebuyer.

1. Take a loan for your down payment

2. Access financing from a savings circle or susu group

3. Use downpayment assistance programs.

For the first 2 options, you are essentially taking on extra debt which is not ideal, especially right before you take on a huge debt like your mortgage. So we always recommend downpayment assistance programs.

What are downpayment assistance programs?

Down payment assistance programs are initiatives offered by private companies or organizations to provide financial assistance to homebuyers to cover either all or part of the upfront costs of a down payment and closing costs when purchasing a home. These programs are usually provided by mortgage lenders or real estate firms and are typically offered as part of a home financing package.

Your home is an investment. A very reliable one at that. You can reliably bet that the value of your home will increase every year at a usually predictable rate depending on a couple of factors like the type of home, neighbourhood, new developments etc. For example, the value of property in Lagos Nigeria increases at around 15% per annum on average.

So let’s use the home example we have been working with from above.

The year you bought the home, it was valued at N20,000,000. By year 2, the value has gone up 15% which means the new value is now N23,000,0000*, by year 3, the new value is N26,450,000 and so on. For ease of illustration;

When you receive down payment assistance, the provider is betting that the value of your home will increase, which could benefit them in the future.

In simple terms, let’s assume that instead of you to wait for 10 years to save the downpayment, you take downpayment assistance for about 70% of the amount. Here’s what it looks like.

Downpayment = N5,000,000 (25% of the value of the home)

70% of the Downpayment = N3,5000,000 (17.5% of the value of the home)

By accepting the down payment assistance, you have effectively sold 17.5% of your home to the provider in exchange for only paying N1,500,000 towards the home's value. So as the value of the home increases, so does the value of the home belonging to the provider of your downpayment assistance.

You have the opportunity to buy back this share of the house within a specified period. Alternatively, the provider could decide to sell their share to a 3rd party, but in general, you dont need to worry because their ownership stake in the home will always be a minority so they will never be able to possess the home.

How can you obtain downpayment assistance?

Downpayment assistance is a loan like any other loan, so any provider will be checking to see if you can afford to pay it back and if you would be willing to pay it back. This means you might be expected to provide a lot of the same documents that you would have to provide for the mortgage loan itself.

The providers will also be looking at the neighbourhood to see if it has the potential for high growth.

H28 Provides downpayment assistance to customers so I will just list a couple of our requirements;

1. A healthy credit score

2. At least 6 months of history on the H28 app

3. At least 6 months of regular contributions to your downpayment wallet

4. A potential home in a high-growth neighbourhood

We decide on a case-by-case basis but if you meet all the requirements above, your chances of approval are as high as 80%.

Benefits of Using Downpayment Assistance to Buy Your Home

1. Access to Homeownership: Down payment assistance programs can help make homeownership more accessible to people who might not otherwise be able to afford a down payment. This is particularly helpful for first-time homebuyers who may not have the savings or resources to put down a significant down payment.

2. Lower Upfront Costs: By providing a portion of the down payment, down payment assistance programs can lower the upfront costs of purchasing a home. This can make homeownership more affordable and reduce the amount of money that a buyer needs to borrow.

3. Reduced Monthly Payments: A smaller down payment can also result in a lower monthly mortgage payment, as the borrower will need to borrow less money to purchase the home.

4. More Money for Closing Costs: By using downpayment assistance, homebuyers may have more money available to cover other costs associated with buying a home, such as closing costs and fees.

5. Increased Equity: By making a down payment, homebuyers immediately start building equity in their home. Down payment assistance programs can help buyers get started on building equity sooner, which can be especially beneficial in areas where home values are rising quickly.

If you're considering buying a home, you're likely aware of just how complex and confusing the process can be. From navigating the ins and outs of mortgage applications to understanding the nuances of property inspections and appraisals, there's a lot to keep track of. That's why it's so important to have a reliable and trustworthy partner by your side, and H28 is the perfect solution. This app is designed to guide you through every step of the home-buying process, providing personalized support and expert advice along the way.

Embark on your homeownership journey today, and start reaping the benefits that come with it. With H28, you can get all the assistance you need, every step of the way. It's never too early to take the first step towards homeownership, so join H28 today and let us help you turn your dream of owning a home into a reality. Click here to get started