First time home buyer programs - Understanding lien position when using varied programs.
A lien is attached to the title of the home. This means that a lender will provide you with the capital to buy the home but will have title ownership of the property until the lien is paid off. If you utilize multiple buying programs each will likely put a lien on the home. Each lien must have an "ownership position". Typically, the first mortgage (the largest loan) will hold first lien position. Any down payment loan/forgivable grants or assistances loan will take up second lien position. If the down payment/closing cost program is a pure grant or gift it may not have a lien position as it will never be added to the title. That is the basics. Although you will have full rights of ownership use to the property the lender holds the title and is the first to be paid off at sale of the property. If you utilize second mortgage programs you need to make sure you understand the requirements of paying them back, if it is required. For example : Some down payment assistance programs require that you remain in the property as a principle residence, that you do not rent it out or transfer title. If you do these actions you may be required to pay the assistance program back immediately, even if it was a grant and had no payment and was expected to "roll-off" at a set period of time. You need to be sure that you understand your rights and responsibility when taking on a grant and assistance program for buying a home.
First time home buyer programs - down payment/closing cost grants, loans and gifts.
Now that you understand the basics of lien positions it should be fairly clear that down payment and assistance programs tend to be second mortgages (there are pure gift programs for down payment and closing costs but they are not very common). These second programs generally require you are approved for a first lien mortgage and these programs usually are FHA, VA, USDA
and Conventional home loans.
Second loans that are used for assistance are usually State, County/City/Municipality Funding and Bond Programs - Not all States and areas offer Bond programs to assist with down payment and closing costs.
Where does the money for these assistance programs come from? Well usually it is from bonds issued by municipalities or they are funded through the cost of the loan (in the interest rate) and given back to the borrower. The amount available for down payment and closing cost assistance may vary greatly depending on the programs. Some programs may offer a flat dollar amount which can vary from a few thousand to tens of thousands of dollars, other programs may offer a percentage of the property sale's price.