Coming up with a down payment can be one of the most daunting challenges of the home buying process, particularly for first-time homebuyers. The more you put down, the lower your monthly mortgage payment will be, but it will depend on what you can save and then what you afford on a monthly basis.
If you're concerned about saving enough for a down payment, there are more than 2,000 programs designed to offer down payment assistance based on homeownership status, income, profession, geographic location, and other factors. In one state alone—Nevada—close to $59 million in such funds has been provided to rural homebuyers since 2006.
Some down payment assistance (DPA) programs provide loans, others offer grants, and some even extend loans that become grants if you follow all the rules. Here's what to know about down payment assistance programs and how to find one that works for you.
- Down payment assistance loans can help first-time homebuyers and others in need gather the necessary funds for homeownership.
- Qualifications for DPA programs may include income level, homeownership status, profession, disability, location, parenthood status, and more.
- Down payment assistance comes in many forms, primarily as loans, but grants may be available as well.
- Every down payment assistance program functions differently, so be sure to investigate the fine details and ask questions about potential pros and cons before you apply.
How Does Down Payment Assistance Work?
In most cases, your state's housing finance authority oversees down payment assistance loans and grants that help coordinate and sustain affordable housing. These state entities may go by names such as the "department of housing," "housing finance agency," "housing authority," or "development authority," among others.
Cities, counties, and states typically work with area partners to distribute down payment assistance. These programs may offer significant grant or deferred loan assistance for a down payment—up to $90,000 in some cities.
Financial institutions, such as banks and credit unions, may also offer down payment assistance programs, either solo or in partnership with government institutions. Grants might require home buyers to come up with 1% of the purchase price, for example, and then provide up to 2% as a grant.
Depending on the DPA program, homebuyers apply for down payment assistance either before or after loan preapproval. In either case, a homebuyer education course will be required. These online or in-person programs are designed to prepare you for finding and financing a home.
The home generally needs to be located in a specific area covered by the program for which you're applying. You might be required to live in the house for a specific amount of time, depending on the loan amount. Others may require residence long enough to continue qualifying for deferred-interest loans.
Some companies extend down payment assistance programs to their employees. For instance, an educational institution may offer such programs to university faculty and staff seeking a home on or near campus.
Who Qualifies for Down Payment Assistance?
Qualification criteria vary, but programs typically target low- to moderate-income first-time homebuyers. Down payment assistance programs may also help special populations, such as military service members or other professions, rural residents, homebuyers with disabled family members, or Native American or Black homebuyers, among others.
Some programs are open to eligible homebuyers regardless of previous homeownership, while others are limited to what an organization considers a first-time homebuyer. That term may be interpreted differently depending on the lender or institution. For example, "first-time homebuyer" may include someone who:
- Has never owned a home
- Has not owned a home for three years
- Is a single parent who had previously owned a house with a former spouse
- Is a "displaced homemaker" who had previously owned a home with a former spouse
Low- to Moderate-Income Homebuyers
Almost all down payment assistance programs are targeted at people with low to moderate incomes. The definition of low to moderate income depends on the location and institution. A frequent method for determining income qualification is based on up to 80%-100% of the Area Median Income (AMI) or on state, city, or county income limits.
Down payment grants or loans, programs that allow you to make rock-bottom down payments, or other assistance may be based on specific careers. For example, professions targeted by many programs include:
- Teachers or school employees
- Law enforcement officers
- Emergency medical technicians or other healthcare providers
- Local workers
- Military service members and veterans
Military service members and veterans can also qualify for purchase loans from the U.S. Department of Veterans Affairs, eliminating the need for a down payment.
The Good Neighbor Next Door Program gives specific professions assistance if purchasing in qualifying "revitalization areas." Those who qualify may receive an incentive in the form of a 50% discount on the list price of the home. In return, they must commit to living in the property for 36 months as their sole residence.
Rural and Lower-Income Location Homebuyers
Federal and state programs can eliminate the need for a down payment for some qualifying low-income rural buyers of single-family homes. Yet other homebuyers may qualify for down payment assistance if they seek a home in a low-to-moderate-income (LMI) neighborhood or in revitalization areas.
Some programs provide down payment assistance for Indigenous or Native American homebuyers, Black and Latino homebuyers, and other groups with historically lower levels of homeownership. Yet other down payment assistance programs provide support to buyers with a disability or buyers living with a disabled person. Some programs offer assistance if a child is living with the parent at least 50% of the time or if the homebuyer is a victim of a disaster in which they lost their home.
Beyond qualifying by being in a specific population, such as being a first-time homeowner or having low to moderate income, programs typically require the following of homeowners:
- Have a certain minimum credit score such as 620-660 or higher (but this can go as low as 580)
- Contribute a percentage or dollar amount to the down payment
- Complete an online, self-led, or in-person homeownership course for first-time homebuyers, and possibly attend a one-on-one housing counseling session
Ideally, a homebuyer should come up with at least 20% of a home's purchase price in order to avoid private mortgage insurance (PMI). For those who cannot, however, there are other options, as many loan types and lenders require as little as 3% down.
What Types of Homes Qualify for Down Payment Assistance?
Typically, down payment loans, grants, and other assistance are provided for a single-family residence, whether a house, condo, co-op, or other home used as your primary residence—not your second home, investment property, or vacation getaway.
There could be restrictions on the home's purchase price or loan amount in order to qualify for the house down payment assistance. These vary by program, so be sure to inquire when exploring your options.
How Is Down Payment Assistance Delivered?
Many forms of down payment assistance programs exist as loans, grants, and hybrids. Here are a few.
- Grants: Down payment grants do not have to be repaid, including first-time homebuyer grants. These may come bundled with a credit union or bank mortgage. Some loans convert to grants after a short period, such as five years, without any repayment required after that time.
- Deferred loans: Many down payment assistance grants are loans with deferred payments, in combination with low interest rates. Commonly, these loans are deferred for around 30 years. You don't need to pay anything on the loan until you've paid off the mortgage or until you sell, move out of, transfer, or refinance the home loan. These tend to be more significant amounts, such as up to 5% of the purchase price, or as much as $100,000.
- 0% loans: These loans carry no interest but still need to be repaid within a certain timeframe, such as 120 months. This means every payment you make toward your 0% loan reduces the principal.
- Forgivable loans: Some 0% down payment assistance loans are forgivable over time, as long as the homeowner remains in the home. Depending on the terms, the borrowed amount reduces by a certain percentage after a set number of years. For example, a grant may be a 15-year loan on up to 20% of the home purchase, which is forgiven by 1/15 for 15 years.
- Shared equity: In this situation, the homeowner borrows a percentage of the home's price for down payment use. In some cases, the loan may not accrue interest and may be deferred. When the homeowner sells the house, they must repay the original loan amount and a portion of equity accrued as the house rises in value.
- Second mortgages: These amortizing down payment assistance loans require a monthly payment but typically at very low interest rates.
- Low- to zero-down: Some loans offer a low- to zero-down payment option, which essentially acts as a form of down payment assistance. Military veterans, disaster victims, and rural homebuyers may benefit from programs that eliminate the need for a down payment, while some Indigenous homebuyers can use a Section 184 loan, which requires only a 2.25% down payment on loans over $50,000 and 1.25% on loans under $50,000.
Carefully review all terms and conditions set out by the down payment assistance program to better understand the pros and cons of down payment assistance. Some programs come with application fees or forbid certain types of mortgage product types (such as "no income check" mortgages or balloon mortgages). Others exclude interest rates or fees above a certain amount or require specific underwriting ratios.
How To Find Down Payment Assistance
The U.S. Department of Housing and Urban Development (HUD) maintains a searchable database of approved housing counselors who may be able to offer advice to you for the home-purchase process. You may also be able to find down payment assistance through your employer, nonprofits, your credit union, or by using a state-by-state guide to down payment assistance programs.
Frequently Asked Questions (FAQs)
How much of a down payment do I need for a house?
The required down payment depends upon the lender's requirements, your desired monthly mortgage payment (a higher down payment produces a lower monthly payment), and whether you hope to avoid private mortgage insurance. In general, a down payment can range from 3% to 20%.
How long does it take to get down payment assistance?
Down payment assistance loans and grants all operate differently. Some only offer funding for a limited time every year, a limited amount in total, or may take more time than others to complete the process. Give yourself leeway to review requirements and apply for assistance that works with your home purchase timeline.