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Down payment assistance: How it works and how to qualify

Yahoo Personal Finance· Getty Images
Emily Guy Birken
6 min read

Many first-time home buyers cannot afford to save up the 3% to 20% down payment necessary to secure a mortgage. According to the U.S. Census Bureau and U.S. Department of Housing and Urban Development, median home prices are currently over $415,000. This means typical home buyers may need a down payment of roughly $12,450 to $83,000, which feels out of reach for many Americans.

To help prospective homeowners afford this part of the purchase process, many government agencies, community organizations, and mortgage lenders offer down payment assistance programs. Here’s what you need to know about identifying and qualifying for down payment assistance.

Learn more: First-time home buyer programs

Down payment assistance (DPA) programs offer cash grants and low-cost or forgivable loans to help qualifying first-time home buyers afford the cost of a down payment.

As of June 2023, there were 1,676 fully funded DPA programs in the United States, according to research by The Urban Institute. The vast majority of these programs are offered on the state level rather than nationally. Only 25 of the nearly 1,700 DPA programs are either national or offered in multiple states.

Read more: How to buy a house in 2024

There are several ways down payment assistance programs might provide financial assistance to home buyers. It’s important for applicants to understand exactly what kind of assistance is available and what requirements they will need to meet. Some of the most common types of DPA programs include:

A grant is a one-time disbursement of cash as a lump sum that generally does not have to be repaid. While there are some traditional cash grants available for down payment assistance, this kind of aid is relatively rare and can be difficult to qualify for. Many of the available DPA cash grants will have strict eligibility requirements, such as very low-income thresholds or specific neighborhood requirements.

Instead of cash grants, the majority of DPA grants are usually set up as “forgivable” grants. This means you do not have to repay the money as long as you meet the necessary conditions for the forgivable grant.

Most forgivable grants require the recipient to live in the home for a minimum number of years to qualify for forgiveness. The median minimum occupancy requirement is five years. If you sell the home prior to the end of the occupancy period, you may have to repay some or all of the grant.

In many cases, applicants will find forgivable grants through state housing financing agencies (HFAs) and approved HFA lenders.

Dig deeper: First-time home buyer grants

This type of DPA is typically a second mortgage loan with a 0% interest rate. In many cases, forgivable 0% loans can cover the entire cost of your down payment. Most loans do not require repayment until after a waiting period has elapsed. The Urban Institute finds that the average waiting period is 10 years.

Like forgivable grants, these 0% interest second mortgages will often be forgiven after the borrower has met the minimum occupancy requirements, which is usually around five years. Since the typical waiting period before repayment begins is longer than the typical occupancy requirement, many borrowers never have to make any monthly payments on these loans. Borrowers who move, sell the home, or refinance the home before the end of the minimum occupancy requirement, however, will have to repay all or part of the loan.

While forgivable loans share many similarities with forgivable grants, there are some important differences. For example, though these loans are 0% interest, borrowers may find they have to repay the loan with interest if they do not meet the residency conditions of the loan (e.g., if they move out too soon). Forgivable grants, on the other hand, do not charge interest if you fail to meet requirements.

Borrowers will generally find these forgivable 0% interest loans through state nonprofit housing organizations or through government agencies.

Tip: This kind of down payment assistance may go by many different names or terms. Borrowers might see these loans referred to as “soft second” or “silent second” mortgages or loans.

Learn more: How to save for a house

Many state housing financing agencies and lenders offer subsidized second mortgages as a form of down payment assistance. These loans will often have a 10-year repayment period and a fixed low interest rate.

Though borrowers do have to repay these second mortgages in full, the low interest rates help to make the loans relatively affordable.

Learn more: 5 strategies to get the lowest mortgage rates

The specific eligibility criteria for DPA programs will vary from state to state and agency to agency. Here are some common eligibility criteria for these types of programs:

  • Residency: The buyer must already be a current resident of the state, city, or municipality where they plan to purchase a home.

  • Owner occupancy: DPA programs are limited to buyers who will live in the property being purchased.

  • Single-family home: Typically, these programs are only available for buyers purchasing a single-family residence.

  • Income level: Though the specific maximum income level will vary from one program to the next, the majority of DPA programs are designed to help low- and moderate-income buyers.

  • First-time home buyer: Though many DPA programs are limited to “first-time home buyers,” in most cases, that simply means the buyer has not owned a home in the last three years.

  • Counseling: Buyers may be required to complete home buyer counseling with an agency approved by the Department of Housing and Urban Development (HUD).

Learn more: How to qualify for a USDA loan with a 0% down payment

The majority of assistance programs are offered at the local or state level, so buyers interested in finding a DPA program should start by looking in their area. HUD has a list of home-buying programs available in each state, which can help you start your search.

You can also search your city and county websites for information on grants and other DPA programs. If you’re not able to find information online, reach out to the relevant agencies via email or phone.

Some mortgage lenders even offer their own down payment assistance programs. For example, Bank of America mortgages offer grants of up to $10,000 in DPA for qualified buyers in certain states. The Pathway to Homeownership program through New American Funding has multiple types of DPA options for up to $8,000.

Read more: Flagstar Bank mortgage review

Even if you go through a local or state program rather than directly through a lender, it’s still a good idea to talk to your mortgage lender about finding a DPA program. Not only will you need to confirm that your lender works with the specific program you are applying for, but the application, approval, and disbursement process for DPA funds can take time. You and your lender will need to build in time during the homebuying process for your down payment assistance to come through.