What is down payment assistance?

Updated September 30, 2025

by Erik J. Martin

home bought with down payment assistance

One of the biggest hurdles to affording a home purchase is the down payment needed. Often, 20 percent down is recommended or required, although some loan programs require little to no down payment.

If you do have to put money down, help for a down payment for a house is available, fortunately, in the form of down payment assistance.

What is down payment assistance, how does a down payment assistance program work, and do I qualify for down payment assistance as a first time homebuyer, you wonder? For that matter, what’s involved with applying for down payment assistance?

Let’s explore the answers to these and other important questions.

...in as little as 3 minutes – no credit impact

What are down payment assistance programs?

Down payment assistance is financial help provided to homebuyers that can reduce or cover the upfront dollars needed for a down payment. Many down payment assistance programs can also provide closing costs assistance.

“It’s designed to make homeownership more accessible for people who qualify but may not have the savings to meet the minimum down payment required by lenders,” explains Zev Freidus, president of ZFC Real Estate.

These programs are often offered by local housing authorities, nonprofit organizations, certain lenders, and state, county, and city governments.

How does a down payment assistance program work?

Down payment assistance (DPA) programs offer qualifying homebuyers – often first-time purchasers or those with low to moderate incomes – financial support in the form of grants or loans to help cover their down payment and closing costs, with many programs providing thousands of dollars in aid depending on eligibility and program guidelines.

“The idea is simple. The program gives you money for your down payment or closing costs, and in return you agree to certain conditions. Perhaps you agree to live there for five years, or maybe you pay back the funds when you sell your home,” says Jenna Lofton, a Certified Financial Planner.

...in as little as 3 minutes – no credit impact

Types of down payment assistance programs

There are a few main types of DPA programs commonly available to help solve your money down or closing costschallenges. Here’s a breakdown of each:

Grants

Grants are the simplest form of DPA because they don’t have to be repaid. These are typically funded by state or local housing agencies, nonprofits, or even employers, and the funds are usually disbursed at closing to cover the down payment, closing costs, or prepaid expenses. If you meet particular income-level requirements, these dollars are essentially forgiven or turned into a gift without repayment needed.

“Grants provide the best deal possible: free money you never have to pay back as long as you follow the rules,” adds Lofton.

Forgivable loans

This type of loan is forgiven after a set period of time – typically 5 to 15 years. In many cases, the forgiveness is prorated annually, and if you sell or refinance before the forgiveness period ends, the remaining balance may become due. However, you usually must agree to live in the house as your primary residence and meet other program requirements.

Deferred loans

Another type of DPA that can ease the path to homeownership is a deferred loan. These are often zero- or very low-interest loans where repayment is postponed until your home is refinanced, sold, or otherwise paid off. Some programsalso allow you to pay off the deferred loan early without penalty.

Low-interest loans

Some DPA programs also offer low-interest loans that spread the repayment over time, which lowers your financial burden. These are often structured as a “second mortgage” alongside your main mortgage, with repayment periods ranging from 10 to 30 years and often at below-market, fixed interest rates.

“Low-interest loans require monthly payments in addition to your main mortgage loan payments,” explains Todd Christensen, a housing counselor and education manager for Money Fit by DRS.

Qualifying for down payment assistance

Curious who’s eligible for DPA? Let’s drill down into how to qualify as well as various conditions that apply.

Who qualifies for down payment assistance?

Dennis Shirshikov, a professor of finance and economics at City University of New York/Queens College, notes that good candidates for DPA programs include a wide range of buyer prospects dreaming of homeownership.

“Most DPA programs target first-time buyers, households with low to moderate incomes, or buyers purchasing in targeted locations,” he says.

Some programs are restricted to specific geographic areas, such as certain cities or counties, or to borrowers with particular backgrounds, like public service employees, teachers, and nurses.

Requirements for down payment assistance

Many of these programs prohibit you from owning a home in the last three years. Depending on the program, you may also be obligated to complete a first-time homebuyer education class and agree to live in the home as your primary residence.

“Additionally, income limits may require that you cannot make more than 80% or 120% of what’s typical in your area,” Lofton says.

Here are a few other rules that may apply:

  • You may need a minimum credit score.
  • You may be required to contribute a portion of your own savings toward the home purchase.
  • You usually cannot use DPA for an investment or rental property purchase. However, many programs permit you to purchase a variety of property types, including single-family homes, condos, townhomes, units in planned developments (PUDs), or even multifamily properties of up to four units, provided you occupy one of the units yourself.

Most programs require that you qualify for a standard 30-year, fixed-rate first mortgage. Some programs may only be paired with specific loan types, including government-backed mortgages.

If you are working with a state housing finance agency (HFA), the DPA typically must be used in conjunction with a first mortgage from one of the HFA’s approved lenders.

Finding down payment assistance programs

Finding DPA programs you may qualify for isn’t as difficult as you might expect. Among the sources and providers you can explore are:

  • HUD: The U.S. Department of Housing and Urban Development (HUD) offers DPA resources nationwide.
  • Your chosen lender: A mortgage officer or loan officer can often guide you to programs you may qualify for and help explain the application process.
  • Local government websites: Many cities and counties provide their own down payment assistance programs. Check your municipality’s website.
  • State housing finance agency (HFA): Each state has an HFA that offers resources and programs for both renters and prospective homeowners. Visit your state HFA’s website to see what options are available.
  • Down Payment Resource: This website provides tools for buyers, lenders, and real estate agents, including a helpful eligibility and assistance lookup feature.

“Your state housing agency website is often the best starting point. HUD has a handy search tool, too, although it’s not always updated. Local housing counselors are really helpful, as they know about programs that aren’t well-advertised. Check your city and county websites, as well,” recommends Lofton. “Some employers offer DPA programs, too, so consider asking your human resources department.”

Real estate agents and local lenders familiar with your market can also point you to viable programs, advises Freidus.

Applying for down payment assistance

Once you find a DPA program you like, here are the typical steps involved with applying for and receiving assistance:

  • Get preapproved for a mortgage loan.
  • Gather and submit necessary financial documents, including pay stubs, tax returns, and bank statements.
  • Read over the fine print carefully, including requirements and restrictions.
  • Check your eligibility criteria to make sure you meet all program requirements.
  • Formally apply for the program online or in person, completing all forms involved.
  • Attend any required informational or counseling sessions before final approval.
  • Prepare to complete a homebuyer education class if required.

“Start early in this process, because all of this takes time,” suggests Lofton.

Down payment assistance alternatives

If you need help with the down payment or want to pay less overall for a home purchase, a DPA isn’t your only option. Alternatives worth considering include:

  • USDA home loan. This mortgage requires zero down payment, but you must agree to purchase in a designated rural area, and you must meet specific income requirements.
  • VA home loan. This financing can also be had for zero down, but you must be a veteran, active duty military member, or surviving spouse.
  • FHA home loan. With an FHA mortgage, you can put down as little as 3.5% if your credit score is 580 or higher (10% down is needed if your credit score is between 500 and 579).
  • Fannie Mae HomeReady Loan. The down payment requirement is only 3% and charges a lower private mortgage insurance premium than the FHA loan, although income limits and primary residence requirements apply.
  • Freddie Mac Home Possible Loan. This also requires only 3% down for low- to moderate-income borrowers. It supports flexible income sources and boasts lower PMI costs than FHA loans, but has income and property eligibility rules.
  • Conventional 97 Loan. Another 3% down payment loan that’s ideal for buyers with good credit and steady income. It offers lower PMI than FHA loans, which can be canceled at 20% equity, but it has stricter credit and incomerequirements.

Some borrowers also ask friends and family members to help with make the down payment on their first home loan.

Down payment assistance FAQs

How long does DPA approval and funding take?

Down payment assistance approval timelines can vary depending on documentation verification and funding needs. Often, this process can add several extra weeks to your overall mortgage timeline. Keep in mind that some programs have waiting lists or deplete their funds earlier than expected, while others only accept applications during particular periods.

Can I combine multiple DPA sources?

You may be able to stack DPA programs and funds, although that will depend on the rules of each program. Confirm with your chosen mortgage lender and DPA program provider.

What are the drawbacks of DPA?

Down payment assistance programs can reduce your upfront costs. But they can also generate additional paperwork, extend the approval process timeline, and add to your long-term debt if it comes in the form of a loan that must be repaid. Additionally, some programs impose time frames that limit the sale or refinance of your home.

The bottom line

It’s important to know exactly what you are committing to before enrolling in a down payment assistance program, especially if you are a first-time homebuyer.

Work closely with your real estate agent, chosen lender, and preferably a HUD-approved nonprofit counselor about DPAprograms.

“Remember that down payment assistance isn’t free money in every case. It’s important to go in with a clear understanding of the terms and rules,” cautions Freidus. “Still, for many, it can be the difference between renting and homeownership – which makes the extra effort and requirements worthwhile.”

...in as little as 3 minutes – no credit impact

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