How to Refinance Your Home: When to Do It and What Your Options Are BY: Nathan Golden | 2022Read Time: 14 min Phone calls, emails,
Down Payment Assistance: 50-State Guide To Homebuying Programs
Down Payment Assistance (DPA)
BY: NATHAN GOLDEN | 2022
Read Time: 18 min
Short on cash for your mortgage down payment? You’re not alone.
A Realtor.com study revealed that 45% of first-time homebuyers cited lack of down payment funds as their biggest barrier to buying. It was the most-cited homebuying barrier by a wide margin.
After all, even a small down payment on a modest home requires thousands of dollars — a tough hurdle, especially as today’s rising rent prices make it even harder to set aside money.
But you may not need to save a huge down payment all by yourself. Many loan programs offer low and no down payment options, and you may also qualify for down payment assistance*.
“Today there are more options than ever,” said Sandy Krestan, a senior loan officer at Fairway Independent Mortgage Corporation (Fairway owns Home.com). “A down payment assistance program that can assist with down payment as well as closing costs might just be the best option,” depending on your situation.
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What is down payment assistance and who qualifies?
Down payment assistance (DPA) programs provide cash to help you meet your lender’s minimum down payment requirement.
There’s no single, national source of down payment assistance, but these programs exist at the state level throughout the U.S. Some cities and counties also offer down payment assistance programs.
Each program works a little differently, and eligibility requirements vary. Generally, most down payment assistance programs fall into two categories:
- DPA Grants: You wouldn’t need to repay down payment assistance that comes in the form of a grant. Most grant programs have income caps, meaning only low- to moderate-income buyers are eligible. You may also need to complete a homebuyer education course, or a few financial counseling sessions, to qualify.
- DPA Loans: Some programs offer DPA loans, which are often 0% interest, forgivable loans, provided you meet the stipulations in the loan contract. In many cases, the loans are forgivable if you live in the home for a certain period of time.
The amount of down payment assistance you can get — and whether you qualify — will depend on the programs available in your area.
Related reading: How to Buy a House in 11 Steps
“DPA programs are great for those that need them. These programs can make or break the ability for a first-time homebuyer to get into a home and start building equity,” said Joe Pessolano, a branch sales manager with Fairway.
How do I find down payment assistance programs?
If you’re already looking for homes, you can ask your real estate agent, loan officer, or local Housing Authority office about down payment assistance programs in your area.
Or, you can Google “down payment assistance in (your town, county, or state).”
In the search engine results, you should see a few programs offered by your state or local governments. In many areas you’ll also come across nonprofits that provide grants or loans for homebuyers, in addition to the programs offered by state housing authorities.
Try to stick with websites that end in .gov or .org.
When you find the DPA programs in your area, read their fine print carefully to make sure you qualify before counting on the down payment assistance grant or loan.
“A down payment assistance program that can assist with down payment as well as closing costs might just be the best option,” depending on your situation.
SANDY KRESTAN, FAIRWAY SENIOR LOAN OFFICER
First-time homebuyer down payment assistance
As you read about DPA programs, you may notice they tend to target first-time homebuyers.
But if you’ve owned a home in the past, don’t worry: You may still qualify for first-time homebuyer down payment assistance. Most DPA programs will consider you a first-time buyer if three years have passed since you last owned a home.
Programs that target first-time buyers are more likely to require a few homeownership counseling sessions or a class for new homeowners.
Not all programs are exclusive to first-time homebuyers, though.
“The biggest myth about down payment assistance programs is that you have to be a first time buyer,” said Jodalee Tevault, a senior mortgage consultant with Fairway. “That is not always the case.”
It’s worth checking with your state housing finance agency to find out what types of assistance are available, even if you’re not a first-time homebuyer. See below for a list of state housing finance agencies.
“DPA programs are great for those that need them. These programs can make or break the ability for a first-time homebuyer to get into a home and start building equity.”
JOE PESSOLANO, FAIRWAY BRANCH SALES MANAGER
Can I use down payment assistance with any loan?
In most areas, you can find a down payment assistance program to work with conventional mortgages or with government-backed home loans, such as an FHA, VA, or a USDA loan.
If you use a conventional loan with 3% down or an FHA loan with 3.5% down, down payment assistance can help you cover that cost, plus your closing expenses. Even with a low down payment loan, you’re looking at thousands of dollars upfront. For instance, a 3.5% down payment on a $300,000 home is $10,500.
DPA can make it that much easier to purchase a home, and it can free up more cash that you’ll have on hand for repairs or updates you need to make upon moving into the home.
If you qualify for a USDA or VA loan, you may be eligible to buy a house with no down payment**. Still, USDA and VA borrowers can often get lower interest rates by making a down payment, and there are DPA programs in many areas that work with both these loan types. You may also be able to use this assistance to cover your closing costs.
But DPA isn’t always the right choice, even if you’re eligible for it.
“The programs often come at a premium. Many have a slightly higher interest rate than market averages and additional origination fees,” Pessolano explained. “Use them if you need them, but it is most likely a better long-term strategy if you can bring your own down payment from your own funds or from gift funds.”
Your loan officer can help you determine whether you qualify for down payment assistance, and when it’s the right choice to use it.
“The biggest myth about down payment assistance programs is that you have to be a first time buyer.”
JODALEE TEVAULT, FAIRWAY SENIOR MORTGAGE CONSULTANT
Combine DPA with low down payment loans
You may be able to finance 100% of the upfront costs on your home (down payment and closing costs) with down payment assistance money — if you’re getting a mortgage that requires a low down payment.
Options may include:
FHA Loans: 3.5% down payment
Mortgages insured by the Federal Housing Administration require at least 3.5% down for borrowers with credit scores of 580 or higher.
USDA and VA loans: 0% down payment
Few primary mortgage loans will finance 100% of your home’s purchase price, but VA and USDA loans fall within this category.
Only military servicemembers, veterans, and some surviving military spouses can get a VA loan. USDA loans are available to qualified low- to moderate-income homebuyers in rural and some suburban areas.
Many DPA programs still work with USDA and VA loans. Even though these loans don’t require money down, making a down payment may improve your interest rate and overall costs on the loan.
Conventional loans: 3% down
Conventional loans are not insured by a federal agency such as the FHA, USDA, or VA. But you can still find conventional loans that require as little as 3% down.
Ask your lender about a HomePossible, HomeReady, HomeOne or Conventional 97, all of which require only 3% down. Many DPA programs offer enough help to cover a 3% down payment, depending on the price of the home.
Down payment assistance FAQs
Each state and local DPA program sets its own rules for eligibility. Most have income limits. If your household earns above a certain income level, you may not qualify. DPA loans sometimes require higher credit scores than primary mortgages.
Down payment assistance grants do not require repayment. And some DPA loans don’t require repayment if you live in the home long enough. In some areas, you would have to repay a down payment assistance loan, either by making monthly payments or all at once when you pay off or refinance your primary mortgage or stop using the home as your primary residence.
Some down payment assistance loans will have to be repaid at some point, even if it’s in 30 years when you pay off your primary mortgage loan. Also, not every homebuyer will qualify for down payment assistance. Low- to moderate-income buyers are most likely to qualify.
If you don’t qualify, consider asking a friend or family member for help making the down payment. Many mortgage types, including FHA loans, allow borrowers to use gift money as a down payment.
Cross the finish line
Down payment assistance can help you cross the finish line to homeownership by providing money you can use toward your down payment and closing costs. If you qualify, you may be able to buy a home sooner than you think, and leave more cash available for necessary home expenses and renovations after you purchase.
*Eligibility subject to program stipulations, qualifying factors, applicable income and debt-to-income (DTI) restrictions, and property limits. Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency. Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.
**A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits.