These programs typically have eligibility requirements and borrowers usually have to take out a mortgage with a participating lender to take advantage of their assistance program. The funds often come from the U.S. Department of Housing and Urban Development, or HUD, as well as employers, community organizations, and state and local governments.
Beyond that, other typical requirements include a minimum credit score of 620, a low-to-moderate household income, and a debt-to-income ratio. Do take note that these requirements vary from program to program. Likewise, many DPA programs also require the following:
You must purchase a primary residence, not an investment or rental property
You must attend a first-time home buyer class or financial literacy classes
Purchase a single-family home, condo, or a townhouse
You must be in a public service profession, such as a teacher, firefighter, police officer, emergency responder, active-duty service member, or other public servant.
Qualify for a 30-year, fixed-rate first mortgage to buy the home.
Home buyer grants are the most popular and most valuable form of down payment assistance. This is because it provides homeowners the money that they never have to repay since it’s considered a gift. If you qualify, you can use the cash sum to cover all or part of the down payment or closing costs.
However, most grant programs are often more difficult to qualify for due to challenging requirements, such as that you need to live in the home as your primary residence for a certain number of years after your purchase. It’s also important to keep in mind that some programs labeled as grants by the organization providing the funding may create a second lien on your home. Just make sure that you know what you’re getting into and that your lender is aware of the grant.
A forgivable loan is technically a second mortgage large enough to cover the down payment, but it acts as a grant since you don’t have to repay the loan if you meet certain requirements. For example, a program might forgive the loan if you live in the home and pay the primary mortgage for a set amount of time, typically anywhere from three to 10 years. However, if you move, refinance your mortgage, or sell your home before the loan is forgiven, you’ll need to pay it back. Forgivable loans have an interest rate of 0%.
A deferred payment loan most often takes the form of a no-interest second mortgage that typically covers the cost of the down payment. But unlike forgivable loans, you will have to pay back the loan at some point. This happens when you sell the home, refinance your mortgage, or pay off your first mortgage.
This type of down payment assistance also functions as a second mortgage but with a lower or more affordable interest rate than your first loan. Along with making monthly payments for your primary mortgage, you’ll likely need to repay this loan in installments, typically over a few years. This means you’ll be making two monthly mortgage payments.
Also called a matched savings program, an Individual Development Account (IDA) is a unique type of down payment assistance. It’s a special savings account that home buyers deposit money into, which is matched by either a bank, government agency, or community organization. For example, if you put $5,000 into the account, the agency you’re working with would match that amount, making it $10,000. The total funds can then be used to help cover their down payment or other qualifying costs. These programs often have strict requirements to qualify, such as income restrictions, and employment requirements, and participants usually need to complete financial literacy training.
Contact your state’s HFA or visit its website to learn about your own DPA options, as every state runs an HFA that helps homeowners and renters.
Check your city or county website to see if they offer any grants or loan programs.
States and some larger cities have housing finance agencies, which can be great resources for state-supported programs.
Municipalities often have housing support programs in one form or another, regardless of whether they do so through a housing finance agency or otherwise.
Nonprofits focused on housing also are good places to look for grants and other forms of down payment assistance.
Look for down payment assistance programs for specific groups. There are programs for people who work in particular occupations, such as the Teacher Next Door program. There are also programs available for other public service professionals.
Your real estate agent and mortgage lender can also be great resources when looking for an assistance program. Just don’t forget to find out if your lender works with the specific down payment assistance program.
Private company Down Payment Resource also provides various resources for homebuyers, real estate agents, and lenders, including an eligibility and assistance lookup tool.
If you’re considering applying for a down payment assistance program, you may want to start looking for your options before you start your home search. This is so you can give yourself plenty of time. If you’re required to take a first-time home buyer course or a financial literacy course, you can still complete it within the dedicated timeframe.
