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Down Payment Assistance: Does it Create a False Sense of House Affordability?

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The downside of Utah’s hot real estate markets is the steady upward trajectory of property prices. Houses, in general, have been out of reach of many low- and moderate-income earners who want to end their days of renting.

Fortunately, down payment assistance programs exist. Like well-documented monetary gifts from acceptable donors, a housing grant in Ogden, Provo, Sandy, or Salt Lake City can put you a step closer to homeownership. It can supplement your cash reserves and help convince a lender you ready to buy a house. While a housing grant can make your property purchase more manageable, it does not necessarily make homeownership more affordable. It may actually create an illusion that you are fit to become a homeowner.

If you want to buy a house in Utah and would like to make the most of a down payment assistance program, do the following to avoid defaulting on your mortgage or losing your home to foreclosure down the road:

Increase Your Credit Score

Earning less money is not an excuse not to have stellar credit. A high credit score cannot single-handedly improve your profile as a borrower, but it can be an excellent bargaining chip to snag a more favorable mortgage rate or eliminate lender-imposed closing costs.

Thanks to fintech, the credit scoring system is undergoing an overhaul. Many mortgage lenders are starting to use alternative pieces of data to assess a borrower’s creditworthiness. To boost your credit score, it is no longer enough to pay your credit card balances and unsecured loans punctually and completely. You should also avoid rental and utility bill delinquencies, for practically all late payments may now be used against you.

Reduce Your Level of Indebtedness

Having less income is correlated to severe indebtedness, but one does not necessarily cause the other. Learn to live within your means if you are to afford ongoing housing expenses once you become a full-fledged homeowner. In addition to monthly mortgage repayments, set aside money for home maintenance. You will be responsible for the upkeep of your property, which is something that can eat into your budget.

Of course, you should strive to find more sources of income moving forward, but employment is somewhat beyond your control. What you can manage, though, is how you spend what you have. You may not have a fancy lifestyle, but modest living can help keep your roof above your head.

Build Home Equity

Home equity concept

As you are trying to pay as little money as possible up front, understand that you will not have a lot of home equity after you move into your house. Home equity is more than just an asset you can convert into cash later. It can prevent your loan from turning upside down if the real estate industry turns sour in the future.

The fastest way to build equity on your property is to pay down your mortgage principal more quickly. Look for a home loan with no prepayment penalty to help you reduce what you owe on your house fast without being punished by your lender.

Down payment assistance is useful only if you take out a mortgage responsibly. If you feel you are not yet ready to buy a house even if you qualify for a housing grant, do not make a premature property purchase because you may regret it later.

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