Down Payment Assistance Programs: Benefits, Options and Requirements
Down payment assistance (DPA) programs provide grants, loans or matched savings plans to help potential homebuyers cover the upfront cost of purchasing a home.
Available from government agencies, non-profit organizations and lenders, DPA programs can remove some of the barriers to homeownership for those struggling to come up with a down payment.
Since a typical down payment can easily cost you tens of thousands of dollars, DPA programs can provide real financial relief and quick access to homeownership. This guide breaks down how DPA programs work, the different types available and how to find them.
- Most mortgages require a down payment, and the required amount can range between 3% and 20% of the purchase price.
- DPA programs help cover some of your upfront costs, such as the down payment and closing costs.
- Applying for DPA programs can add weeks to the homebuying process, so it’s important to start early.
- You can find DPA programs through non-profit organizations, state housing agencies and private lenders.
Types of down payment assistance
DPA programs can take different forms. The table below breaks down the six main types.
| How it works | Who it’s best for | |
|---|---|---|
| Grants | Free money that doesn’t have to be repaid | Low-income buyers with limited savings |
| Forgivable loans | The loans are forgiven after you’ve lived in the home for a certain period | Buyers planning to stay in the home for at least three to five years |
| Repayable second mortgages | Loans are repaid over time in monthly installments | Buyers who need help right away and can afford the added monthly costs |
| Deferred repayment second mortgages | Loan is only repaid when you sell or refinance | Buyers who want flexibility without adding to their monthly obligations |
| Individual development accounts | Matches your savings contributions | Disciplined savers who are willing to build up their down payment over time |
| Lender assistance | DPA offered by banks or credit unions | Buyers working with lenders who operate their own programs |
- Grants: Grants provide you with a lump sum to use toward your down payment or closing costs. The grants don’t have to be repaid as long as you meet the program’s terms, such as living in the home for a certain period.
- Forgivable loans: These loans are forgiven after a specific period, such as after five years of residency. If you move out before the end of that term, you have to repay the loan.
- Repayable second mortgages: A repayable second mortgage gives you a second loan to cover the down payment, but you’ll make monthly payments toward it alongside the primary mortgage. These second mortgages usually have low interest rates (or even 0%), making them more affordable.
- Deferred repayment second mortgages: Similar to repayable second mortgages, deferred repayment second mortgages give you a loan, but you don’t have to repay it until you sell or refinance the property.
- Individual development accounts (IDA): Offered by some nonprofit organizations, IDA programs match your savings contributions toward the down payment.
- Lender assistance: Some lenders offer their own programs, such as special mortgages with no down payment requirement and no private mortgage insurance (PMI).
How to apply for down payment assistance
Every program will have its own application process, but in general, you’ll need to follow these steps:
- Gather documents: Programs will usually ask for your pay stubs and recent tax returns, copies of your bank statements and proof of residency or citizenship.
- Apply through the right channel: Follow the program’s instructions. Some require you to apply online, while others require an approved real estate agent or lender to apply on your behalf.
- Notify your lender: Let your mortgage lender know you’re applying for DPA and where you are in the process so they can take that into account when structuring your mortgage.
- Complete a homebuyer course: Many programs require you to complete homebuyer counseling as a condition of the DPA.
- Be ready to provide additional information: You may be asked for additional information, so check your email and phone often, and respond to requests quickly to keep the process moving forward.
Where to find local down payment assistance programs
DPA programs are available from non-profit organizations, government agencies and private lenders. As you explore your options, ask these questions:
- Are there income or credit restrictions?
- Is the DPA a grant or loan?
- Do I have to commit to living in the home for a certain period?
- How long does the application process take?
To find programs in your area, check out these resources:
Nonprofit organizations
Some nonprofits at the national, state and local levels operate their own DPA programs. For example, the National Homebuyers Fund (NHF) DPA program provides eligible applicants with assistance that covers up to 5% of the mortgage loan amount.
You can use Fannie Mae’s down payment assistance tool to find nonprofit programs in your area.
State and county agencies
State housing finance agencies and local county housing departments often have their own programs. For example:
- Florida, Manatee County: In Manatee County, low-to-moderate-income homebuyers can qualify for DPA in the form of a 0% interest deferred loan. After 20 years, the loan is forgiven, but it must be repaid in full if the home is sold or leased out.
- New Jersey: Through the New Jersey Housing and Mortgage Finance Agency, qualifying first-time homebuyers can receive up to $22,000 in DPA in the form of a five-year forgivable loan.
- Texas: The Homes for Texas Heroes program is a DPA program designed for specific professions, such as police officers, firefighters, corrections officers and more. Eligible homebuyers can qualify for grants to use toward the down payment.
Use the U.S. Department of Housing and Urban Development’s database to find information about your state and county’s programs.
Mortgage lenders
Some banks and credit unions offer down payment assistance. For example:
- Bank of America: The Down Payment Grant program provides a grant of up to 3% of the home’s purchase price, up to $10,000, in select markets.
- Power Financial Credit Union: This credit union has a special loan program for first-time homebuyers that allows you to buy a home with $0 down and no PMI.
- Space Coast Credit Union: The Space Coast Credit Union offers grants of up to $10,000 in down payment assistance to first responders, including firefighters and healthcare workers.
- Wells Fargo: Through the Homebuyer Access grant, eligible homebuyers can receive $10,000 in the form of a grant to use toward a down payment.
Check out brick-and-mortar banks, credit unions and online lenders to find the best deal, and ask your realtor if they know of any programs in your area.
Pros and cons of down payment assistance programs
Pros
- Reduced out-of-pocket costs: DPA programs reduce how much money you need to pay upfront for a home, allowing you to become a homeowner even if you have a smaller bank balance.
- Potentially become a homeowner sooner: Instead of waiting to buy a home until you’ve saved a large down payment — and risking rising housing prices — you can become a homeowner sooner.
- Repayment may not be required: Depending on the program and how long you live in the home, you may not have to repay the DPA.
Cons
- Longer timelines: Some DPA programs can take weeks or even months to process. In a competitive housing market, delays can be costly, so apply early.
- Strict eligibility requirements: DPA programs often have strict requirements. They may be limited to certain areas, income levels or available only to first-time homebuyers.
- Potential repayment obligations: Some programs require you to repay the amount of DPA assistance you received, so it can add to your overall costs.
Estimate your monthly payments with LendingTree’s mortgage calculator.
Frequently asked questions
Depending on the program, qualifying for down payment assistance can take anywhere from a few weeks to a few months. Apply early to avoid delays once you’ve found the perfect home.
Whether repayment is required depends on the type of down payment assistance and the specific program. Grants rarely have to be repaid, but some loans may have to be repaid if you move within a certain time frame or if you receive down payment assistance in the form of a second mortgage.
In general, down payment assistance programs are not included in the homebuyer’s gross income for federal income tax purposes. However, how programs are taxed may vary based on the program structure and the entity running the program, so consider working with a tax professional.
Typically, yes, down payment assistance programs allow you to use the funds toward closing costs instead of the down payment. In general, closing costs are 2% to 5% of the loan amount, so down payment assistance programs can provide significant savings.
You can usually refinance your mortgage even if you received down payment assistance. However, some forms of down payment assistance require you to repay the aid you received at the time of refinancing.
View mortgage loan offers from up to 5 lenders in minutes