Down Payment Assistance: Mortgage Help for First-Time Home Buyers and How to Apply

While conventional wisdom says that you need to save a 20 percent down payment to buy your first home, there are multiple programs designed to help with down payment assistance, which means you may be able to buy sooner than you think.

It takes hard work and dedication to save for a house, but you may be surprised to know that many first-time home buyers only put 3-5% of the home sale price down at closing, thanks to the help of first-time buyer programs. And, there are even a few zero-down payment options available.

What is down payment assistance?

Down payment assistance helps first-time home buyers come up with a down payment to purchase a home and begin building wealth through homeownership. Down payment assistance takes multiple forms, including loans, grants, vouchers and more. Assistance amounts can range from a few thousand to tens of thousands of dollars, and can be used toward closing cost assistance, and/or principal or down payment reductions.

What is a down payment assistance (DPA) program?

Down payment assistance (DPA) programs are loans and grants aimed at assisting homebuyers with their down payment expenses. Down payment assistance programs are offered by local or state housing authorities and non-profit organizations. They work in conjunction with loan programs like those offered by the Federal Housing Administration (FHA), where you can put as little as 3.5% down. They’re also compatible with VA, USDA, and conventional loan types. There are also lenders that specialize in down payment assistance programs who work with state or local housing agencies, or they may offer their own down payment assistance programs.

Down payment assistance eligibility requirements

To qualify for down payment assistance, you must have not owned a home in the past three years. You must also show proof of a credit score 620 or higher, a steady income, and a healthy debt-to-income ratio.

Individual programs may have more eligibility requirements, like that you must remain in the home for a specified period of time, ranging from as little as three years up to 10 years. Some programs are limited to certain geographic areas, which could affect your eligibility. You also may be required to take an educational course.

Can you qualify for more than one down payment assistance program?

Yes, it’s possible to qualify for more than one down payment assistance program. For example, FHA loans, which are popular with first-time buyers, can also be combined with a down payment assistance program, helping offset financial requirements about down payment and mortgage insurance premiums.

Types of down payment assistance loans and programs

There are multiple types of down payment assistance that may be available to you, depending on your location and financial situation. Here are a few key types.

Grants

Down payment assistance grants require no repayment. They’re typically government-funded, local- or state-run programs that subsidize part of the down payment for eligible buyers. They’re usually only available to first-time home buyers and require you to remain in your home for a set number of years before selling. If you do sell your home before the agreed-upon period of time, you’ll have to pay back the grant amount upon closing.

Forgivable loans

As the name implies, this type of loan, which is structured as a second mortgage, doesn’t have to be repaid unless you sell before an agreed-upon number of years. These loans have 0% interest, meaning you’ll just make a principal payment each month.

Deferred-payment loans

This type of loan covers a portion of your down payment. Also structured as a second mortgage with 0% interest, it gets repaid when you sell or refinance your mortgage.

Down payment loans

This is a second mortgage with a low or no-interest rate. You open it when you get your first mortgage, and it covers the cost of your down payment. It gets repaid monthly over time, just like your first mortgage, but usually with a very low interest rate.

Down payment match

Offered by some banks, government agencies or community organizations, this program will match your down payment dollar for dollar. So, if you have $20,000 to put down on the purchase of a home, it will be matched by another $20,000.

How to apply for down payment assistance

Here are the 8 steps you need to follow to apply for down payment assistance.

1. Research down payment assistance

Start by doing some online research for down payment assistance programs available in your area. The US Department of Housing and Urban Development offers a state-by-state list of programs. Or fill out the DPA questionnaire to check your eligibility.

2. Talk to a lender about down payment assistance programs

Your real estate agent, mortgage broker or lender are also great resources for finding down payment assistance programs. Get pre-qualified for a home loan to get your budget conversation started.

3. Formally apply for down payment assistance

Now is the time to formally apply for the down payment assistance program you’d like to use. Each program is different, so be sure to pay special attention to application details, timing and document requirements.

4. Attend a homeowner education course

Many first-time buyer programs require you to attend a homeowner education course before awarding you any funds. You’ll be advised about any required first-time buyer education during your application process.

5. Get pre-approved

Get officially pre-approved with your lender so you know how much you can afford. This will allow you to act quickly once you find a home you love. Then, start seriously house shopping.

6. Shop for homes

Start browsing for homes that meet your financial profile. On Zillow, you can determine if the property you’re interested in and your loan criteria may make you eligible for down payment assistance programs via a questionnaire on the home listing. Make sure the program you hope to use is available for your loan criteria and the home you aspire to buy.

7. Make an offer

Once you’ve found a home, work with your agent to make a competitive offer, while sticking to your budget. And be patient: The Zillow Group Consumer Housing Trends Report 2021 found that 59% of buyers end up making multiple offers on homes before getting one accepted.

8. Apply for home financing with down payment assistance

Once your offer is accepted, you can move forward with financing, locking in your rate and beginning the underwriting process. When using down payment assistance, your closing timeline will likely be a bit longer.

How long does it take to get down payment assistance?

Because there’s usually some back and forth between your lender and the DPA agency you’re using, it’s likely that your closing process will take longer than the typical 30-45 days.

Pros and cons of down payment assistance

Down payment assistance is widely considered to be a good thing for most first-time buyers, but it’s always important to consider all the financial implications and requirements before signing up for a down payment assistance program. Here are a few important pros and cons.

Pros:

Speed up homebuying: Purchase a home faster, by having to save less.

Better understand homebuying: Most down payment assistance programs require buyers to take a course, which can help you gain helpful education about the home buying process.

Some improve proximity to public service jobs: The Good Neighbor Next Door program allows public service workers to live closer to where they work.

Cons:

Locked years of ownership: There are often restrictions around how soon you can sell your home after purchasing. A common restriction requires repayment of the funds if you sell within the first 3-5 years of ownership.

Some require repayment: Some down payment assistance programs are additional loans, which can require repayment in just a few years, in addition to your monthly mortgage payment. Other programs place a 2nd lien on your home that you’re required to pay off when you sell or soon after selling, sometimes with interest.

Can lengthen closing process: Using down payment assistance may make your closing process take longer than the standard 30-45 days.

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