4 Tips for Finding a Down Payment Assistance Program That’s Right for You

Saving for a down payment on a home can be challenging. Luckily, government and private down payment assistance (DPA) programs help qualified homebuyers, especially first-time buyers, purchase a home with a smaller down payment. In fact, some programs may not require any down payment. Let’s explore what down payment assistance programs are and how they could help make homeownership more affordable.

What Is a Down Payment Assistance Program?

Down payment assistance programs provide qualified homebuyers with funds for the down payment and/or closing costs. The programs are primarily sponsored by government agencies, nonprofits and housing organizations, and most are designed for first-time homebuyers.

Down Payment Assistance Program Requirements

Each program has its own qualification criteria and guidelines on what constitutes a first-time homebuyer. For example, if you previously owned a home, but not within the last three years, you may still qualify. Eligibility may also depend on your household income, credit history and geographic location.

Typically, you’ll be required to work with a participating lender and the down payment assistance may only be available with certain types of mortgages, such as a:

  • Federal Housing Administration (FHA) loan
  • Fannie Mae and Freddie Mac conforming loan
  • VA loan backed by the Department of Veterans Affairs
  • USDA loan backed by the U.S. Department of Agriculture

Most programs also require attending a homebuyer education course.

Types of Down Payment Assistance Programs

Down payment assistance programs can help make it easier to come up with a down payment, but how assistance is provided varies. There are four main types of down payment assistance programs: 0% deferred-payment loans, 0% forgivable loans, low-interest loans and grants.

Zero-percent forgivable loans:  These loans may cover some or all of your down payment and are considered second mortgages with a 0% interest rate. No repayment will be required if you own and live in your home for the stipulated period.

Zero-percent deferred-payment loans: Deferred-payment loans are also considered second mortgages with a 0% interest rate. The loan may cover your entire down payment and is repaid once you sell your home, refinance or pay off your mortgage.

Low-interest loans: With a DPA loan, your down payment and associated upfront costs are spread out over an extended period, such as 10 years. The interest rate is often lower than a traditional mortgage.

Grants: Grants provide financial assistance without a repayment obligation.

How can you find these valuable DPA programs to help you on your path to homeownership? Here are four tips.

1. Visit Your State’s Housing Authority

The U.S. Department of Housing and Urban Development (HUD) provides a variety of home-buying support resources, including links to housing authorities by state. Housing authorities are local government agencies that administer DPA programs. Find your location on the list to view state and regional programs that can make homeownership more affordable.

2. Look for Specific Assistance From Your County or City

City or county housing authorities frequently initiate down payment assistance programs designed to help residents of their jurisdictions. Reaching out to a loan officer can be a good first step toward finding DPA programs in your area.

3. Check Out the U.S. Department of Housing and Urban Development

Although the Department of Housing and Urban Development does not directly provide down payment assistance to homebuyers, it does give funding to state and local governments and nonprofit organizations to develop DPA programs. Two HUD-funded DPA programs include:

HomeReady® mortgage. Put down as little as 3%. No minimal personal funds are required. Borrowers of 2-4 unit homes are required to contribute a minimum of 3% down. Funds can come from grants and other sources.

Freddie Mac Home Possible®.* Down payment requirement of as little as 3%. Borrowers of 2-4 unit homes are required to contribute a minimum of 3% down. Funds can come from employer-assistance programs and other sources.

Contact your local HUD office or a housing counselor to learn more about available DPA programs.

4. Speak to a Housing Counselor

The U.S. Department of Housing and Urban Development sponsors a nationwide network of housing counseling agencies that offer free or low-cost advice on a variety of housing topics, including buying a home. Visit the HUD website or call HUD’s interactive voice system at (800) 569-4287 to find a HUD-participating counseling agency near you.

Don’t let the upfront cost of a down payment stop you from pursuing homeownership. By researching down payment assistance programs, you may be surprised by how affordable homeownership can be.

*Must meet the requirements of Freddie Mac Home Possible®, standard conforming Freddie Mac or Pennymac Manufactured Home requirements in addition to Freddie Mac BorrowSmart® requirements. Primary residence purchase only. All occupant borrowers must complete pre-purchase counseling with the Homeownership Preservation Foundation (HPF). An upfront, non-refundable $99 homebuyer counseling fee is required to be paid by the borrower to HPF at the time of the required counseling.