Down Payment Assistance Programs: How They Work

What Are Down Payment Assistance Programs?

While a 20% down payment is often cited as the gold standard, many mortgages—including conventional mortgages—permit much lower amounts. There are many loan types, with a range of pros and cons, that affect how much you need to put down.

Down payment assistance programs come in different forms, from grants to low-cost loans. All are designed to help homebuyers cover the upfront costs of buying a home, particularly the down payment, though some could also help with closing costs.

These programs are especially useful for first-time homebuyers who may struggle to meet typical down payment requirements. In fact, some programs are only available to first-time homebuyers.

Learn more: Pros and Cons of a 20% Down Payment

Types of Down Payment Assistance Programs

There are a variety of down payment assistance programs, but these are the most common types:

Grants

Typically reserved for first-time homebuyers, grants work like a gift: You don't have to repay the money. The exception is if you don't remain in the home for a required number of years; if you move out earlier than agreed upon, you must pay it back.

Grants for helping with down payment costs might be offered by a range of entities, including federal agencies, employers, nonprofit organizations and government housing authorities.

Forgivable Loans

This type of program is actually structured as a second mortgage that's large enough to cover your down payment. The loan is forgiven—meaning you don't have to repay it—if you meet requirements to remain in the home for a set number of years.

If you sell and move out before then, you'll have to pay back the loan.

Deferred Loans

This is also a second mortgage intended to cover the size of your down payment. Like forgivable loans, you don't pay anything while you're living in the home with a mortgage. The difference: The loan does have to be paid back. However, you don't start making payments until you've paid off your first mortgage, or until you sell or refinance the home.

Homeowners typically repay deferred loans with proceeds from selling the home when they move.

Low-Interest Loans

Another option is low-interest loans, sometimes called down payment loans. This is another type of second mortgage, which comes with a low (or possible no) interest rate and is used to cover your down payment costs. You repay it in monthly installments, like your mortgage, which means making two monthly housing payments.

Lender-Specific Programs

Some lenders offer their own programs for borrowers who need down payment support. This is sometimes done as a dollar-for-dollar match, where if you put down money, the lender will put down the same amount. Some lenders will provide a credit toward a down payment for eligible buyers in certain locations.

Example: You have saved up $15,000 for a down payment. With a dollar-for-dollar lender match program, the lender would provide $15,000, giving you a total down payment of $30,000.

Tip: If you qualify for a VA loan from the Department of Veterans Affairs or a USDA loan from the U.S. Department of Agriculture, you may not need to make a down payment at all. Check to see if you qualify.

Down Payment Assistance Program Requirements

Each type of down payment assistance program has its own restrictions, but applications typically need to meet the following criteria:

• Income limits: To ensure that down payment assistance programs help homebuyers who truly need it, there may be income maximums to qualify.
• Credit score requirements: Down payment assistance programs may require applicants to have a minimum credit score of 620 to help ensure they're prepared for a mortgage. Different programs may have different credit score requirements, so be sure to check the requirements of the program you're considering.
• First-time homebuyer status: Some, though not all, down payment assistance programs require applicants to be first-time homebuyers. That said, some programs will consider you a first-time buyer if you haven't owned a home for the past three years.
• Primary residence requirements: Down payment assistance programs usually require that applicants use the property as their primary residence and/or they remain in the home for a set time period (anywhere from three to 10 years).
• Completion of homebuyer education course: A frequent requirement of down payment assistance programs is taking a course on becoming a homeowner. While it sounds like a headache, it can actually provide helpful information on the process.

Learn more: How to Get Down Payment Assistance

How to Find Down Payment Assistance Programs

If a down payment assistance program sounds ideal for you, there are several places you can search and apply for them:

• State and local programs: Official housing agencies for various municipalities, counties and states often have down payment assistance programs available to residents, as do some nonprofits. Try searching "down payment assistance" with your city, county or state name to find what's available nearby.
• U.S. Department of Housing and Urban Development (HUD): This government agency lists resources by state, where there are links to some state-level assistance programs.
• Lenders: As you start the mortgage process, ask your lender if they have, or are aware of any, down payment assistance programs you could be eligible for.
• Online portals: Some websites allow you to input your information and see down payment programs you might qualify for. A popular one is Down Payment Resource, which lists thousands of programs. You can also try Fannie Mae's down payment assistance tool or real estate site Zillow's search tool.

Frequently Asked Questions

The Bottom Line

A major impediment to homebuying is often the requirement to put down a significant chunk of money upfront. Down payment assistance programs can help address this concern and make homeownership a reality for those who are eligible.

Since down payment assistance programs typically come with required credit score minimums, make sure to check your FICO^® Score^☉ early in the homebuying process to see if you may qualify now or if you may need to make some improvements.