Buying a home is likely the largest financial transaction you’ll ever make. The down payment alone can be tens of thousands of dollars - an amount that many struggle to save.
If you’re having trouble saving for your down payment, don't be discouraged. You can seek financial help from down payment assistance programs that offer low-interest loans and grants to help homebuyers cover the purchase price of their homes.
Below, we explore several down payment assistance programs you may be able to take advantage of to help make homeownership a reality for you.
How does down payment assistance work?
Most conventional private mortgages require a down payment equal to 20% of the home’s value to avoid private mortgage insurance. On a $347,500 home (the median home price as of the first quarter of 2021, according to the Federal Reserve Bank of St. Louis), that’s $69,500. That’s a substantial amount of money that some homeowners struggle to save.
Down payment assistance programs are a form of financial aid (offered by federal, state and local governments) that help homebuyers bridge that gap.
In general, these programs are designed to help first-time homebuyers, but there are some exceptions.
There are a few broad types of down payment assistance programs:
- Grants are essentially free sums of money that don’t need to be repaid.
- Second mortgages that you pay down alongside your primary mortgage. These often come with low interest rates.
- Second mortgages with deferred payments that you only have to pay if you sell your home, move or refinance your mortgage.
- Second mortgages that the lender forgives over a defined period, which can range from five to 20 years. You only have to repay the loan if you move, refinance your mortgage or sell your home.
- Matched savings programs that let you contribute money to a down payment savings account and have a financial institution, government or private organization match your contribution.
How to qualify for down payment assistance
Most down payment assistance programs are designed for first-time homebuyers, but there are exceptions.
You typically have to be a first-time homebuyer to qualify for down payment assistance programs.
However, some programs consider you a first-time homebuyer if you’ve owned a home before, but not within the past three or more years. Even then, several states have programs that specify that you don’t need to be a first-time buyer to participate.
Programs vary by state, but you'll usually need to also meet the following requirements:
- The home will be a primary residence.
- The home is located in a census-designated area.
- You have low to moderate income.
- You cannot own rental or investment property, even if you don’t live in it.
- You must work with an approved mortgage lender.
- Your FICO credit score must be at least 620 (may be greater for some programs).
Some programs may also require you to attend training on mortgages and managing finances as a homeowner.
How to find down payment assistance programs by state
Nearly every state has its own set of down payment assistance programs. These programs differ by the amount of funding they receive and the number of areas in the state that qualify for down payment assistance.
Your state’s housing authority should have information on down payment assistance programs, so visit its website or contact the agency. The U.S. Department of Housing and Urban Development can also connect you with resources in your state.
The federal government offers a few down payment assistance programs:
- Chenoa Fund: The CBC Mortgage Agency offers this in every state but New York to help homeowners cover up to 3.5% of their down payment. Depending on your credit score and income, you can receive a grant, a forgivable second mortgage or a regular second mortgage.
- Community Seconds: This Fannie Mae-sponsored program helps homebuyers gather funds from governments and nonprofits to put together enough cash for a down payment.
- HomePath: HomePath offers Fannie Mae homes at discounted prices, meaning smaller down payments are required.
- Government mortgages: While not technically down payment assistance, government loans often require a much lower down payment than private mortgages. Some government loans, like VA-backed purchase loans, require no down payment at all.
How to apply for down payment assistance
You can typically apply for down payment assistance through the offering organization’s website. Prepare for your application by gathering proof of income and employment, documents showing your first-time homebuying status (barring programs that allow repeat buyers) and paperwork pertaining to the property you’re buying. You’ll also have to undergo a hard credit check to verify your credit.
For example, Texas offers down payment assistance through the Texas State Affordable Housing Corporation. The website offers an eligibility quiz to see if you qualify and has numerous other helpful resources.
Homebuyers in Nevada may qualify for the Home Is Possible program, which is another good example of a down payment assistance program. This program can get you up to 5% of your mortgage’s value to use on your down payment. The website also lists criteria you must meet to qualify.
Arizona’s Department of Housing offers links to various federal, state and private programs available to homebuyers in need of down payment assistance.
On the federal level, HUD lists organizations in your state that provide down payment assistance and other homebuying help.
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