Down Payment Help Is Only Half the Answer (A First-Time Buyer Guide)

By Frank Burks II, Certified Mortgage Advisor | The Burks Lending Group empowered by NEXA Lending

Down payment assistance can get you into a home with far less cash than you think, but it doesn't lower the mortgage payment due on the first of every month. Those are two different problems. The smartest first-time buyers solve both before they sign.

I love helping first-time buyers get the keys. It's my favorite part of this work. But after 25 years, I've learned something: the best closing day is the one you're still happy about 18 months later.

So let's talk about how to get in the door and stay comfortable once you're inside.

Why are cash to close and the monthly payment different problems?

Most first-time buyers worry about two things and treat them like one.

Problem 1 is cash to close. That's your down payment, closing costs and prepaid items like homeowners insurance and property tax escrow. It's the money you need on closing day.

Problem 2 is the monthly payment. That's the bill that shows up every month for years after the moving boxes are gone.

Down payment assistance is built to help with Problem 1. And it can be a huge help. But here's the honest truth: getting help with cash at closing doesn't make the monthly payment any smaller. Depending on the type of assistance, it can even add a second payment.

That's why I review both problems separately for every buyer. Solve one and ignore the other, and you can end up with a house you got into but can't breathe in.

You may need less down than you think

Before we even get to assistance, a lot of buyers are surprised by how little some loans require.

• FHA loans allow as little as 3.5% down for qualified buyers
• VA loans can require no down payment for eligible veterans and service members
• USDA loans can require no down payment for eligible buyers in eligible areas, and plenty of Middle Tennessee qualifies
• Conventional loans have low down payment options for qualified first-time buyers too

The old idea that you need 20% down to buy a house keeps a lot of good people renting longer than they need to. For many buyers, the down payment is smaller than they expect. Closing costs and reserves are often the bigger hurdle.

What kinds of down payment assistance are out there?

I work with multiple assistance programs and match each buyer to the one that fits their credit, income and situation. They generally come in three types.

Grants

A grant is money toward your purchase that typically doesn't need to be repaid. It's the most straightforward kind of help, though grants often come with income limits, homebuyer education requirements or rules about how long you live in the home.

Forgivable second mortgages

This is a second loan that's forgiven over time if you meet the conditions, like living in the home as your primary residence for a set number of years.

The catch: if you sell or refinance before the forgiveness period ends, some or all of it may come due. So if you think you might move in three years, that matters.

Repayable second mortgages

This is a second loan you pay back. Some have a small monthly payment. Others are deferred until you sell, refinance or pay off your first mortgage.

If it has a monthly payment, that payment gets added to your housing costs. That's exactly why Problem 2 can't be ignored.

Each type has its own rules. Some also have requirements about how they work alongside a seller credit. I walk through every line with you before you choose, so there are no surprises after closing.

What actually goes into a monthly mortgage payment?

When most people hear "mortgage payment," they picture principal and interest. That's only part of it. Your real monthly housing cost usually includes:

• Principal and interest on your loan
• Property taxes, usually collected monthly into escrow
• Homeowners insurance, also usually escrowed
• Mortgage insurance, on many loans with smaller down payments
• HOA dues, if the neighborhood has an association
• Any payment on a repayable second mortgage from assistance

Add it all up and the number is often a few hundred dollars higher than what buyers expect from an online calculator. That gap is where stress lives.

The Three Numbers I check for every buyer

Before I recommend any loan or assistance program, I look at what I call The Three Numbers. If all three work, you're in great shape. If one doesn't, we fix it before you write an offer.

Number 1: The payment that fits your real life

Not the payment a lender will approve. The payment that fits your life.

That means counting the childcare, the car note, the student loans, church, the gym, and the Friday night pizza. A lender can qualify you for a number that technically works on paper and still leaves you house-rich and grocery-poor. I'd rather you sleep well.

Number 2: Your total cash to close

This is your down payment plus closing costs plus prepaids, minus any assistance, seller credit or lender credit. It's the actual check you'll write.

Number 3: The money left in the bank after closing

This one gets overlooked the most, and it matters the most.

Because something will break. The water heater. The garbage disposal. The AC in July, because it always waits for July. Homeowners need a cushion. If closing wipes out every dollar you have, your first repair becomes your first emergency.

Sometimes assistance is exactly what protects Number 3. Sometimes a seller credit does. Sometimes the right answer is a different loan type. That's the puzzle I put together for you.

Questions to ask about any assistance program

Whether you find a program yourself or I bring one to you, get clear answers to these:

1. Is this a grant, a forgivable second or a repayable second?
2. Is there a monthly payment, and how much?
3. What triggers repayment: selling, refinancing, moving out, or paying off the first mortgage?
4. How long until it's fully forgiven, if it's forgivable?
5. Are there income limits, price limits or homebuyer education requirements?
6. Can it be combined with a seller credit on this purchase?
7. How does it change my total monthly payment?

If someone can't answer those clearly, keep asking until they do.

Getting ready if you're not ready yet

Not every buyer is ready today, and that's okay. Some of my favorite closings started with a conversation that went, "Let's get you ready for spring."

If you're six months out, focus on:

• Paying every bill on time. Payment history carries real weight in your credit score.
• Keeping credit card balances low. High balances can drag scores down even when you pay on time.
• Holding off on new credit. That new car can wait until after closing.
• Saving for reserves, not just the down payment.
• Keeping your paperwork organized, especially if you're self-employed. Two years of tax returns tell your story.

A quick review now can save you months later. And it costs you nothing to ask.

Does down payment assistance lower my monthly mortgage payment?

Not usually. Down payment assistance helps with the cash you need at closing, not the monthly payment. Some assistance is a repayable second mortgage with its own monthly payment, which can raise your total housing cost.

Do I have to pay back down payment assistance?

It depends on the type. Grants typically don't need to be repaid, forgivable second mortgages are forgiven over time if you meet the conditions, and repayable second mortgages are paid back monthly or when you sell or refinance.

How much do I need to put down on my first home in Tennessee?

FHA loans allow as little as 3.5% down for qualified buyers, and VA and USDA loans can require no down payment for eligible buyers. Conventional loans also offer low down payment options. Closing costs and reserves are often a bigger hurdle than the down payment itself.

What happens to a forgivable second mortgage if I sell early?

If you sell or refinance before the forgiveness period ends, some or all of the remaining balance may come due. Ask exactly how forgiveness works and what triggers repayment before you choose that type of assistance.

How much money should I have left after closing?

There's no single number, but you want enough to handle a surprise repair without stress. Some loan programs also require a minimum amount of reserves. I review your remaining savings along with your payment and cash to close before recommending a structure.

Your key is closer than you think

The goal was never just to get you a house. It's to get you a home you can actually enjoy living in, with a payment that lets you breathe and a cushion for life's surprises.

Down payment help opens the door. A smart payment plan keeps the lights on and the joy in the house.

If you're a first-time buyer in Smyrna, Murfreesboro, Nashville, La Vergne, Lebanon or anywhere in Middle Tennessee, here's how to start:

Start your Secure Application and I'll match you with the assistance options you may qualify for, then build your plan around all Three Numbers.

Want to talk it through first? Book a 15-minute call. Bring your questions. I'll bring the answers.

Everybody Deserves a Key.

Frank Burks II, Certified Mortgage Advisor | NMLS #841644 | The Burks Lending Group empowered by NEXA Lending | NMLS #1660690 | Equal Housing Opportunity. Educational content, not a loan offer or commitment to lend. Assistance programs, terms and eligibility vary and are subject to change.