Down Payment Assistance: Available Programs & How to Apply

The down payment is one of the biggest obstacles to homeownership. The average home price nationwide is about $295,300. That means most home buyers need around $9,000 to $60,000 for a down payment. Down payment assistance programs can help some borrowers clear that hurdle.

How do down payment assistance programs work?

Down payment assistance (DPA) is a blanket term used for grant and loan programs that help eligible borrowers buy homes by covering all or some of the down payment. Here's how they work.

Nonrepayable grant: This money never has to be repaid, so long as certain conditions are met.

Example: Bank of America offers a nonrepayable down payment grant equal to 3% of the purchase price, up to $10,000. Geographic, occupancy, and household income limits apply.

Forgivable loan: This is forgiven after certain conditions have been met.

Example: New York offers a down payment assistance loan for 3% of the purchase price, up to $15,000. The loan is forgiven after 10 years if you have met all the conditions.

Deferred payment loan: A deferred payment loan is often a second mortgage. A second mortgage is a secured loan, with the home serving as the collateral. That means the lender can seize your home if you don't pay back the loan eventually. But there is no monthly payment until the first mortgage is paid off or you sell the property, whichever comes first. These are typically low-interest loans, and sometimes 0%.

Example: Oakland offers a deferred payment second mortgage of up to $75,000. You aren't required to make monthly payments, but the loan is due in 30 years or when the home is sold, refinanced, transferred, or converted to a rental (whichever comes first). The loan will accrue interest until it's paid off.

Savings match: A lender or government agency matches the money you save in a special account, called an Individual Development Account. That account helps you reach your down payment goal faster.

Example: In Virginia, qualified people can get $8 in matching funds (up to $4,000) for every $1 they save toward their down payment.

Who can get down payment assistance?

Many first-time home buyers are eligible for down payment assistance, especially low-income and moderate-income people. Several programs can help military members and veterans, as well as certain public service employees.

The majority of down payment assistance programs set household income limits. These programs are designed to help low- and moderate-income earners. The income limit depends on the program, the median income where you live, and the size of your family.

Also, most programs are limited to first-time home buyers who will live in the home as their primary residence. To be a first-time home buyer, you can't have owned or co-owned residential real estate for the past three years. If you own another home, even if you don't live in it, you are unlikely to qualify as a first-time buyer.

Eligibility requirements vary by program but often include:

• Being in the military (or a veteran)
• Being a public service employee
• Completion of a home buyer education program
• A minimum credit score of 640
• Your debt-to-income ratio
• Location (like rural areas or specific cities and counties)

Keep in mind that you'll still need to qualify for a mortgage through a mortgage lender. Read our first-time home buyer guide to learn about the home purchasing process. Even if you get help with the down payment, mortgage lenders will want to see some money in your savings. Some lenders require one month's reserves or more. You aren't likely to qualify if you have zero dollars in the bank. One of the nice things about DPA is that it lets you keep your money in savings toward the inevitable expenses of home ownership rather than use it for a down payment.

What mortgage can down payment assistance be applied to?

Down payment assistance programs are generally designed to work with low down payment home loans. That makes sense since down payment assistance is often equal to the minimum down payment required for one of those loans. The administrator of the DPA program you pick can point you to the lender or loan that will work for you.

How to apply for down payment assistance

To apply for down payment assistance, your main task is to find programs that are available to you.

Down payment assistance programs can be hard to find. You may have to hunt around to find options in your area. There may be overlapping assistance programs in areas that are served by lenders, government agencies, and nonprofits.

Here's a good place to start:

• Go to the Department of Housing and Urban Development.
• Click on your state.
• Click the Homebuying Programs or Homeownership Assistance link.
• Explore the government-sponsored programs in your city, state, or county.

You can also contact the Housing Finance Authority in your state.

If you're affiliated with the military, search for "military down payment grant" to find banks and private organizations offering down payment assistance.

Be persistent in your search. Private programs may not be listed on federal or state government websites. For example, the National Homebuyers Fund and the Chenoa Fund are available nationwide. The Chenoa Fund has down payment assistance programs with no income restrictions. Borrowers who miss the income cutoff can get a 10-year, 0% loan to cover their down payment.

Once you find a program, you might be directed to apply with a participating lender. If you're given a list of lenders, it's a good idea to apply with a few so you can compare offers. Be sure to confirm that each loan officer is familiar with the DPA programs you're considering. Even the best lenders for first-time home buyers can be unaware of how DPA programs work.

Alternatives to down payment assistance

Here are some alternatives to down payment assistance programs:

Good Neighbor Next Door. Law enforcement officers, firefighters, emergency medical technicians, and teachers can buy a home for half-off the purchase price and only $100 down. The discounted portion of the purchase price is covered by a deferred payment loan that is forgiven after you've lived in the home for 36 months. There's no income limit to participate.

VA loan. Veterans Affairs (VA) loans are for eligible service members, veterans, and some spouses. Eligible borrowers can get a VA loan with zero down. The VA charges a funding fee, which will be higher without a down payment. But some VA borrowers can roll that cost into their loan balance and pay nothing out of pocket upfront.

USDA loan. Eligible borrowers can get a USDA loan with zero down. USDA loans are only for properties in certain areas, usually rural. You'll have to qualify as a low- or moderate-income household.

A 100% financing loan. This option can let you buy a house with no down payment through a private lender. But you may have to pay all or some of the closing costs. For example, NASA Federal Credit Union and Navy Federal Credit Union offer zero down mortgages to any qualifying members.

Still have questions?

Here are some other questions we've answered:

• Down Payments: What They Are & How They Work
• How to Buy a House With No Down Payment
• How to Save for a Down Payment on a House