How to Find Down-Payment Assistance for a Mortgage

A 'For Sale' sign is displayed outside of a home for sale in Los Angeles on Aug. 16, 2024. Patrick T. Fallon/AFP/Getty Images

Many people who want to buy a home have a problem coming up with the money for a down payment. This can be a significant barrier to homeownership. Even if they can afford the monthly mortgage, not having a down payment can prohibit purchasing the house.

But there is some respite for potential homebuyers. There are programs that can help with the down payment. The challenge is finding the ones that apply to the individual’s circumstances.

Down-Payment Assistance Programs

Down-payment assistance (DPA) programs provide financial help to cover a down payment or closing costs for potential home buyers.

Grants or low-interest loans are provided that reduce the upfront cash needed to buy a home. Some DPAs provide forgivable loans or cash gifts. While some don’t need to be repaid, others may require a low or no-interest repayment.

There are 2,000 down homeownership programs nationwide, and down-payment assistance makes up 75 percent of available programs, according to Down Payment Resource. Many are administered by state, county, and city governments and can provide thousands of dollars to eligible buyers. FHA.com provides a list of states and the programs they offer.

Although specific rules vary, most require a low to moderate income, a decent credit score, and being a first-time home buyer.

Other requirements include:

• Buying a primary residence
• Buying with local purchase price limits
• Using an approved mortgage program
• Working with an approved mortgage lender

The exact criteria to qualify for an assistance program depends on where you live and if the property is eligible.

How to Find Down-Payment Programs

Start by reaching out to a housing counselor. These counselors will help you make informed decisions based on your financial situation and needs. They are available for little or no charge. The Department of Housing and Urban Development (HUD) has a list of approved housing counseling agencies.

Another route to finding help with a down payment is through Fannie Mae. Fannie Mae has partnered with Down Payment Resource to help you find down payment and closing cost help. Fannie Mae also provides a down-payment assistance tool.

The Federal Housing Administration’s featured private down-payment assistance program is the Chenoa Fund. Funded by the CBC Mortgage Agency, the Chenoa Fund provides the ability to use an FHA-insured home loan by offering eligible applicants 3.5 percent of the purchase price to cover the down payment.

This assistance comes in the form of a zero-interest second mortgage. It has a 30-year term. This second mortgage will be forgiven if the borrower makes 36 consecutive, on-time payments on the primary mortgage.

Types of Down-Payment Assistance Programs and Loans

Most down-payment assistance programs are for first-time homebuyers. They come in the form of grants and loans. Besides local state and federal programs, some private sector and non-profit funds are available.

Some of these grants are considered second mortgages, and sometimes the program consists of you taking out a second mortgage. Failure to report this to the lender is illegal, and you could be prosecuted. Be sure to carefully read the terms of the grant or any down payment assistance before signing.

There are several forms of assistance available.

Grants for Down Payments

Grants provide money that doesn’t have to be paid back. It’s considered a gift.

However, some programs labeled as grants by the organization providing the funds may actually create a second lien on your home.

Although there is nothing inherently wrong with this, you should know what type of deal you’re entering. Ensure your lender is aware of the grant. If you don’t, you might end up with a “silent” mortgage.

Forgivable Loans for Homebuyers

Forgivable loans are second mortgages. You won’t have to repay these loans as long as you stay in the house for a set number of years.

Most lenders will forgive the loans after five years of residence. But they have the option of making the forgiveness 15–20 years. If you sell the home before the state number of years, you pay the loan back at zero percent interest.

Deferred Payment Loans Are Second Mortgages

A deferred loan is a second mortgage with a deferred payment. It’s a loan you don’t have to repay until you move, refinance or pay down your first mortgage.

These are never forgiven; you simply must pay it back if you sell your home.

Low-Interest Loans Provides Down Payment

An organization or your lender may offer you a second mortgage while you take out the first mortgage. You'll then use the funds of the second mortgage as a down payment for the first or primary mortgage.

You must repay the low-interest loan in installments. So, this means you’ll have two mortgage payments per month. You want a low or no-interest-rate loan.

Matched Savings Programs Based on Your Savings

Also called individual development accounts, matched savings accounts help potential homeowners with a down payment.

Prospective buyers deposit money into a bank, community organization, or government agency. That institution agrees to match the amount deposited. The buyer can then use all the funds for the down payment.

Contact a HUD-approved housing counselor and see which option might work for you if you need down-payment assistance. Many states and local governments have programs that will assist you.

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