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Down Payment Assistance Programs

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Many Americans dream of owning a home, but struggle to save up enough for a down payment. Take heart, though, because down payment assistance programs (DPAs) might help overcome this hurdle.

Learn how down payment assistance programs work, so you can decide which one fits your needs and if you’re eligible.

What is down payment assistance?

If you haven’t saved enough money to buy a home or prefer to leave cash in the bank for a rainy day, down payment assistance may lend a helping hand. The U.S. Department of Housing and Urban Development (HUD) provides funds to all 50 states that can be used for down payment assistance programs. However, you can only apply for DPA money through an approved bank, government or nonprofit housing agency.

You’ve probably heard the myth that 20% is the normal down payment on a house. However, some home loan programs require as little as 3%, and some even require zero down. Still, if saving enough cash for a down payment is a challenge, you’re not alone. In fact, 68% of potential buyers consider saving money for a down payment as their biggest obstacle, according to a 2019 Urban Institute report.

Common types of down payment assistance programs

You’ll typically receive down payment assistance in one of two ways: as a grant, or as a second mortgage. Read the fine print for each type of assistance so you understand the terms and conditions.


A grant is money that doesn’t have to be repaid. Down payment grants are offered to homebuyers through a state or local municipality. You’ll need to qualify for a mortgage first, and some programs charge higher interest rates on the first mortgage to cover the costs.

For example, the Arizona Industrial Development Authority’s non-repayable down payment grant will cover a down payment of 0% to 5%, depending on the type of mortgage you apply for. The DPA can also be used to cover closing costs.

Second mortgages

When you take out a regular mortgage, it’s considered a “first” mortgage because there are no other loans on your property. A down payment assistance loan becomes a second mortgage because it’s placed behind your first mortgage as a lien on your home.

You may or may not have to make payments on a DPA second mortgage while you own the home. In some cases, the balance may be completely forgiven after a set time period. The most common terms for a down payment second mortgage include:

  • Regular principal and interest payments. This works like a regular fixed-rate mortgage with stable payments for a set term at a fixed interest rate.
  • Deferred or forgivable payment seconds. Look for terms like “recapture” or “silent second” if you apply for down payment assistance with a deferred or forgivable second mortgage.
    • Recapture refers to whether you have to repay the assistance if you sell or refinance your home.
    • Silent seconds are liens recorded on your home equal to the amount of down payment assistance. No repayment is typically required. The lien is released after the home is owned for a specified time period.

First mortgage programs through banks

One important limitation of DPA programs: You can take out a first mortgage only with banks approved by your state’s housing finance agency. Not all lenders are approved to make loans with down payment assistance. If you’re already preapproved, ask your lender if they participate in down payment assistance programs.

Where to find down payment assistance programs

  1. State and local housing finance agencies. Besides federal funding, state and local governments may sell tax-exempt bonds to provide down payment assistance. These programs are mostly geared toward low- to moderate-income buyers in targeted neighborhoods called “qualified Census tracts.”
  2. Employers. Large companies may offer down payment assistance to help recruit or keep employees in a particular area.
  3. Industry-specific programs. Employees in specific professions, such as law enforcement, military, educators and health care professionals may qualify for DPA programs geared specifically toward them. Some options include:
  • Good Neighbor Next Door. Law enforcement officers, K-12 teachers, firefighters and emergency medical professionals can buy homes at up to a 50% discount under this HUD first-time homebuyer program. Buyers must agree to live in the home for at least 36 months to avoid having to pay the assistance back.
  • Teacher Next Door. Educators can get a $6,000 grant or DPA of up to $10,681. Most closing costs are covered for eligible buyers.
  • Nurse Next Door. Medical staff, nurses and health care support employees may be eligible for grants and DPA at terms similar to the Teacher Next Door program.
  1. Nonprofit housing agencies. Habitat for Humanity and NeighborWorks are examples of nonprofits that may offer help with a down payment. They generally assist low- to moderate-income families trying to buy their first home.

How to qualify for down payment assistance

When you apply for a home loan, you have to meet the minimum requirements set for the first mortgage. Down payment assistance programs come with additional guidelines that may include:

  • Income restrictions. DPA programs are primarily geared to help low- to moderate-income borrowers purchase homes.
  • Eligibility in select neighborhoods. FHA down payment assistance is usually focused on qualified Census tracts. These neighborhoods are targeted for homeownership to help revitalize communities and improve the quality of life for nearby residents.
  • No recent homeownership. HUD first-time homebuyer programs are typically available to buyers who haven’t owned a home in the last three years.
  • Length of ownership restrictions. DPA programs are designed to help promote homeownership. As a result, borrowers are required to own the property for a certain number of years, or repay the money.
  • Limited to owner-occupants. To prevent buy and flip investors from using down payment assistance, it’s only offered to buyers who plan to live in the homes.
  • Homeownership counseling. Some programs require homeownership counseling before applying for a loan. The courses help buyers understand all of the responsibilities and potential costs of homeownership.

FAQs about down payment assistance

What’s a normal down payment on a house?
In 2019, the median down payment for a home was 12%, according to the National Association of Realtors’ 2019 Profile of Home Buyers and Sellers report. However, there are conventional and government-backed loan programs with minimum down payments ranging from 0% to 10%, depending on your credit score, income and other eligibility requirements.

Can I also get help with closing costs?
Yes. In addition to down payment assistance programs, some housing finance agencies also offer assistance with closing costs. Income and neighborhood restrictions are similar to DPA programs.

Where can I find out more about HUD first-time homebuyer programs?
Use HUD’s online search tool to see what’s offered in your state.

Does a mortgage credit certificate help with my down payment?
No. A mortgage credit certificate (MCC) allows homeowners to take their mortgage interest deduction monthly instead of at tax time. Check with your state housing agency to see if any MCC programs exist.


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