Since you are here reading this, you are probably considering using a first-time home buyer grant. You want to understand the pros and cons of these assistance programs before applying for one. Fair enough! We usually double-check everything before making even the tiniest decision. Now that you are diving into homeownership, it makes sense that you want to learn all the facts before moving forward. So, without further ado, let’s dive into the advantages and disadvantages of down payment assistance programs. By the end of this blog, you will know the reasons to use or avoid these programs for the down payment for a house. 

The Pros - How Down Payment Assistance Programs Can Help You Buy a Home

1. You Can Buy a Home Sooner Instead of Waiting Years to Save Up

Let’s suppose you are trying to buy a $600,000 home. To make that home yours, you will need a minimum down payment of at least $35,000. If you save $500 a month, it will take you nearly six years to reach that amount. That’s assuming home prices don’t go up.

A first-time home buyer grant can cut this wait time dramatically. Instead of spending years saving, you could get into the housing market sooner and start building equity.

2. Lowers the Upfront Costs and Makes Homeownership More Affordable

Apart from the down payment, many upfront costs are involved in home buying. You must also pay for the closing costs, legal fees, and home inspections upfront. A down payment assistance can significantly reduce the money you need upfront, easing your financial burden. 

3. Allows You to Keep Your Savings for Emergencies and Unexpected Costs

Many first-time homebuyers make the mistake of using every penny they have to cover their down payment. Doing this can be risky because owning a home comes with unexpected costs, such as emergency repairs, high interest rates, or even a job loss. Thankfully, with down payment assistance, you don’t have to put all your savings into your home purchase. You can set aside some money for future needs while still achieving your goal of homeownership.

4. Some Programs Offer Assistance with No Strings Attached

Some assistance comes in the form of a grant or forgivable loan that you can use for the down payment for a house without any obligations. Another no-repayment obligation down payment program is the commission-based cashback model. Real estate platforms usually offer this assistance to first-time homebuyers. Take, for instance, the Tonsto downpayment assistance program. Under this program, you can get up to 2% cashback - a part of the real estate commission they charge for representing you in the buying process. This cashback comes with no repayment obligations.

5. You Can Combine Some Assistance Programs

Another great thing about down payment assistance is that you can stack multiple programs to maximise your savings. This feature can significantly reduce the money you need to come up with on your own. However, not all programs allow the stacking option. So, read the fine print before assuming you can use down payment programs together.

Cons - What You Need to Watch Out for With Down Payment Assistance

1. Some Programs Have Very Strict Rules on Who Can Qualify

Not everyone qualifies for the first-time home buyer grants. A few programs have strict income limits, home price restrictions, and residency requirements. The restrictions make it difficult for some aspiring homeowners to take advantage of them.

2. Many Programs Require Repayment That Can Add to Your Costs Later

While some down payment programs don’t require you to pay anything back, others come with repayment terms. For example, the Home Buyer’s Plan allows you to withdraw from your RRSP for a down payment. But you must repay that money within 15 years, or it will count as income and be taxed. Then, some programs offer loans with lower interest rates or deferred payment schedules. While these down payment assistance can still be helpful, they add another financial obligation for you, the home buyer.

3. The Application and Approval Process Can Take Longer Than a Regular Mortgage

Down payment assistance programs can take weeks - or even months - to process. Many programs require detailed applications, proof of income, and other paperwork. Some also have waiting lists or application deadlines. This delay could mean missing out on your dream home if you are in a competitive housing market.

4. Not Every Program is Available in Every City or Province

A first-time home buyer grant may not be available in every city or province in Canada. Some programs may be available only in certain municipalities or for specific types of homes. So, even if you qualify for a particular program, you may not be able to apply for it.

5. Some Programs Require You to Live in the Home for a Certain Period

Another drawback of using assistance for the down payment for a house is that it may come with residency requirements. Yes, some programs require you to live in the home for a set period. If you rent it out or move before that, you could lose the assistance or be required to pay it back. This restriction can be a major drawback if your life plans change later.

6. Some Programs Take a Share of Your Home’s Future Value

Certain down payment programs work as shared equity agreements. As per this agreement, the government or lender gives you down payment assistance in exchange for a share of your home’s future value. So, when the time comes for resale, you might have to pay back much more than you borrowed, depending on your home’s current value.

Choose the Down Payment Assistance Program Wisely – It Could Make a Big Difference

Every down payment assistance program will certainly have a few conditions to watch out for. However, remember that the drawbacks of some programs may outweigh the benefits. For instance, grants and forgivable loans can be a big financial boost for you unless some tricky conditions are attached. Even the down payment assistance program Tonsto gives you cashback without adding debt or any other obligations. So, do your homework, choose your options, and pick the down payment assistance wisely. The right program can give you a real financial boost, helping you buy a home without weighing you down.