August 12, 2023

Down Payment Assistance

What is down payment assistance?

Down payment assistance (DPA) programs offer loans and grants that can cover part or all of a home buyer’s down payment and closing costs.

More than 2,000 of these programs are available nationwide. State, county, and city governments run many of them.

DPA programs vary by location, but many home buyers could be in line for thousands of dollars in down payment assistance if they qualify.

Who qualifies for down payment assistance?

Down payment assistance programs are typically meant for first-time home buyers. However, a repeat home buyer often counts as a “first-time buyer” if they haven’t owned a home in the past three years.

Typical requirements to qualify for down payment assistance:

First time home buyer
Low-to moderate-income
Buying a primary residence
Buying within local purchase price limits
Using an approved mortgage programs
Working with an approved mortgage lender

Keep in mind that every down payment assistance program is a little different. The exact criteria to qualify will depend on where you live and which programs are available.

In addition, you could get more money and qualify easier if you’re buying in a so-called “target area.” Your lender can help determine if your property is eligible.

How down payment assistance works

Down payment assistance (DPA) helps homebuyers with grants or low-interest loans, reducing the amount they need to save for a down payment. Provided you qualify, you could receive a forgivable loan or an outright cash gift that never has to be repaid. Some loans must be repaid with low or no interest. Many DPAs can be used for closing costs too.

Most DPA programs are offered at the local level. And eligibility requirements vary from one program to the next.

Many DPAs require that you be a first-time home buyer (meaning you haven’t owned a home in three years) with a decent credit score and a low or moderate income. But not all programs have these same rules. Also, note that many DPA programs have a list of “participating lenders” they work with. Therefore, it might be necessary for you to select a lender that your assistance program has approved.

Types of down payment assistance programs

There are four main types of down payment assistance

1 Grants the gifted money that never has to be paid

2 :Loans will be second mortgages that are paid monthly along with your primary mortgage

3 Deferred loans will be second mortgages with deferred payments that only have to be paid when you move, sell or refinance

4 Forgivable loans: Second mortgages that are forgiven over a set number of years (often five, but maybe up to 15 or 20). These only need to be repaid if you move, sell, or refinance too early

How to find down payment assistance programs

Down payment assistance programs are usually very localized. There are a few national DPAs and many statewide ones, but the majority are run at the city or county level.

The best way to find down payment assistance programs for which you qualify is to speak with your loan officer or broker. They should know about local grants and loan programs that can help you out. They’ll also know which programs the lender can accept (not all lenders work with all DPAs).

How much down payment assistance can I get?

Down payment assistance programs are something of a ZIP code lottery. Depending on where you want to buy, you could be in line for a few thousand dollars or tens of thousands. And your program will dictate whether the money is a grant or a loan that needs to be repaid.

For example

In Seattle, you could get up to $55000 as an interest free loan that you don’t have to pay until you move, sell, transfer or refinance your home and that could be decades later
In New York City, you could qualify for a forgivable loan or up to $100,000 which, if you stay at home for 10-15 years, does not have to be paid.

Of course, some homeowners will qualify for more and some for less. The only way to know how much help you’re in line for is to find local down payment assistance programs in your area and apply.

Is there closing cost assistance, too?

Some homebuyer programs explicitly state that you can use their funds for closing costs as well as your down payment. Others may or may not have rules about that. Check your local down payment assistance programs to see if they are included closing costs grants are included.

What mortgages can be used with down payment assistance?

Almost all DPA programs require you to borrow from an approved lender and use an approved mortgage program. You may have to sign up for a particular mortgage product.

However, DPA-approved mortgages often include the most popular loan programs, like:

Conforming loans from Fannie Mae and Freddie Mac’
FHA loans (backed by the Federal Housing Administration)
VA loans (backed by the Department of Veterans Affairs)
USDA loans (backed by the U.S Department of Agriculture)

In other words, the mortgage products allowed by your DPA program may be very flexible.