Cash For Home Buyers Through Downpayment Assistance Programs

Neighborhoods benefit when new home buyers move in.

New homeowners spend money in local stores, they make home improvements and beautify streets, and they pay taxes into the municipality.

Homeownership is the centerpiece of local economies so local governments pay subsidies to make their areas more attractive to incoming buyers.

The subsidies, known as Downpayment Assistance Programs, come in five forms:

  • Cash grants for down payment
  • Closing cost credits for your mortgage
  • Interest rate reductions on your home loan
  • Down payment loans for your home
  • Tax bill credits to your municipality

Cash Grants For Your Down Payment

Cash grants account for the majority of down payment assistance programs. The average cash grant for a first-time home buyer is $10,000.

When you receive a cash grant, it's a gift - there’s no requirement to repay it. However, many grant program stipulate that the money only becomes “free” after you've lived in your new house for a certain number of years — typically five.

If you move out before the five years pass, the grant must be repaid. 

Closing Costs Credits

Closing cost credits is another form of downpayment assistance.

Closing cost credits is a one-time cash grant, paid at closing, to offset the costs with your purchase.

Closing cost grants don’t have to be repaid, but generally require home buyers to purchase and live in their homes for a minimum of 3 years.

Should you move out before the three years pass, the grant must be repaid.

Interest Rate Reductions

Some cities provide home buyers with cash to be used for buying discount points on their mortgage.

Discount points are a one-time fee paid to your lender at closing in exchange for a lower interest rate.

For example, if your quoted mortgage rate is 3.00 percent, after paying discount points with cash from your city, your rate might drop to 2.50 percent.

Down Payment Loans

Some local governments offer downpayment assistance programs that give interest-free loans to first-time buyers who want to make a downpayment.

Loan terms are usually favorable – 0% interest - and the loan only comes due when the home gets sold in the future.

Down payment loans are the least common of all five down payment assistance types.

Tax Bill Credits

Tax payment reductions are a variation on the down payment assistance theme.

When you use a city's tax payment reduction stimulus, you get favorable, long-term tax treatment as the owner of a house, which lowers your tax bill and helps you save money.

For help finding a down payment assistance program in your target city, ask us your question in the chat.

Dan Green

Dan Green

Dan Green is a former mortgage loan officer and an industry expert. He's appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.

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