Written by Dan Green
Dan Green
Dan Green (NMLS 227607) is a licensed mortgage professional who has helped millions of people achieve their American Dream of homeownership. Dan has developed dozens of tools, written thousands of mortgage articles, and recorded hundreds of educational videos. Read more about Dan Green.
This website discusses mortgage programs and how to qualify. Your eligibility may vary based on lender guidelines and investor overlays. Check with your lender for specific details.
Trusted Content
This article was checked for accuracy as of November 4, 2024. Learn more about our commitments to accuracy and your mortgage education in our editorial guidelines.
Updated: November 4, 2024
This article includes information about housing bills in Congress. None are yet passed into law. This article is for informative purposes only.
Down payment assistance is any program that gives eligible home buyers cash grants, low-interest rate mortgage loans, or tax incentives to help purchase a home.
Down payment assistance is when a government agency, community organization, or mortgage lender gives a first-time home buyer cash grants, lower mortgage rates, or tax incentives to purchase their first home.
There are more than 3,000 down payment assistance programs nationwide. Common downpayment assistance types include:
The roots of down payment assistance are in the social and economic good of homeownership.
Studies show that when people become homeowners, life outcomes improve, and local communities benefit. Civic engagement rises, household wealth grows, and children are more likely to finish high school.
Homeowners also spend money with local businesses which generates tax revenue for municipalities and social services.
Home buyers may be eligible for up to 5 types of down payment assistance. Programs can be stacked for larger gains, when eligible.
The majority of down payment assistance programs are cash grant programs.
Cash grants are awards that don’t require repayment. However, many cash grant programs feature a 5-year clause that requires buyers to live in their new home for five years at minimum or repay the grant to the issuing entity in part or whole.
One example of a cash grant program is the proposed Downpayment Toward Equity Act, which gives first-time home buyers up to $25,000 cash for down payment, closing costs, and other related costs.
Read more about the Downpayment Toward Equity Act.
Closing cost credits are cash grants given to a home buyer at closing to pay their settlement fees, which may include mortgage discount points, real estate taxes, fees for title, and other costs.
The most common form of closing cost credit is seller concessions, which are grants issued from a home seller to a buyer. Seller concessions range up to 6 percent of your purchase price, and your buyer’s agent can add them to your purchase contract.
Read more about seller concessions.
Another down payment assistance type awards lower mortgage rates, which reduces monthly PITI, and makes homes more affordable for first-time buyers.
When state and local governments and community groups offer discounted mortgage rate programs, they usually pay discount points on a buyer’s behalf, which reduces mortgage rates by 25 basis points per discount point paid in a healthy housing market.
At today’s mortgage rates, one discount point saves $11,639 over the life of $200,000 30-year mortgage.
The FHFA First-Time Home Buyer Mortgage Rate Discount is an example of a federal mortgage rate discount program. Since 2022, it awards automatic mortgage rate discounts to eligible first-time buyers.
Read more about the FHFA First-Time Home Buyer Mortgage Rate Discount.
Forgivable mortgages are a form of down payment assistance where a portion or all of a home buyer’s mortgage debt is erased once the buyer meets pre-defined conditions, such as living in the home for five years or maintaining five years of continuous employment within an eligible field.
Forgivable mortgages generally accompany FHA mortgages or conventional mortgages and represent the down payment portion of a home buyer’s purchase.
The Conventional 100 is a forgivable mortgage.
Property tax credits and property tax reductions are another type of down payment assistance, offered by local and municipal governments, in specially-designated neighborhoods and census tracts. Buyers in affected areas receive temporary property tax relief, which lowers monthly payments for up to 10 years.
Mortgage Credit Certificates (MCC) are a form of property tax credit. States may charge home buyers as much as $750 to apply for an MCC. Awards range up to $2,000 after claiming taxes paid with the Internal Revenue Service.
Imagine an aspiring first-time home buyer who works as a travel nurse and diligently saves money from each payment to someday own a home. Over the last three years, though, as the nurse’s down payment fund grew, so did the price of homes in their area. No matter how much they work, they can’t seem to save enough money to make their desired 3 percent downpayment.
Then, the nurse discovers down payment assistance programs. They can get a cash grant to boost their down payment, a federal tax break to save on money paid to the IRS, and seller concessions to pay for their closing costs entirely.
Instead of waiting another four years to buy, the nurse realizes they can break their lease now and buy a home today.
Downpayment assistance programs can be categorized as applied automatically, or manually.
Federal down payment assistance programs are often automatic, with no application. They include:
Other down payment assistance programs, specifically those administered by state and local governments and charitable groups, are processed manually, which means buyers must apply for assistance directly.
The U.S. Department of Housing & Urban Development (HUD) provides links to local programs on its website, grouped by state, county, and city. Before applying, review your preferred program’s terms and conditions to ensure they meet goals. Some programs enforce a 5-year residency and others will require that you remain employed in a particular line of work.
Manual assistance programs may add months to your home purchase sequence so apply in advance.
Yes, Homebuyer.com offers several down payment programs for first-time buyers, including the Conventional 100 mortgage and a $5,000 cash grant program through our partner bank. We do not offer down payment assistance for mortgages funded by other mortgage lenders.
Down payment assistance programs are generally meant for first-time home buyers. However, each program’s guidelines are different so repeat buyers may be eligible.
The amount of down amount assistance will vary by program. Some DPAs give the buyer a percentage of the home’s purchase price, such as with seller concessions and forgivable loans. Others provide a fixed amount of home buyer assistance.
Whether you must pay back down payment assistance depends on the program. By definition, a grant or tax credit never needs repayment, and forgivable mortgages are repayable only when certain conditions cannot be met.
Many down payment assistance programs require that buyers attend a homebuyer education course to ensure they’re well-informed about homeownership responsibilities and financial management.
Many downpayment assistance programs contain a “recapture” clause. If you sell your home within a certain period after purchase, you may have to repay some or all of the assistance received.
There is no centralized database for down payment assistance programs, so you should start by checking with local housing authorities, state housing finance agencies, and non-profit organizations specializing in housing assistance.
This article, "What Is Down Payment Assistance?," authored by Dan Green, is based on extensive professional mortgage experience and includes references to trusted sources such as industry-leading financial institutions and expert research from the following websites:
This article was last updated on November 4, 2024.
Wave goodbye to waiting times and say hello to our faster, better mortgage application. It's available anytime you are, 24/7/365. The power to approve your mortgage is just a click away.
NMLS #423065 Member FDIC. Equal Housing Lender.
What is a Starter Home?
Down payment assistance is any program that gives eligible home buyers cash grants, low-interest rate mortgage loans, or tax incentives to purchase a home.
Member FDIC. Equal Housing Lender.
Homebuyer.com
Operated by Novus Home Mortgage
230 Findlay Street
Cincinnati, OH 45214
513-824-8171
Notices
Mortgages
