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How to Use Local and Government Programs and Loans to Afford a Down Payment

In this article

  1. What is down payment assistance?
  2. How does down payment assistance work?
  3. Options for down payment assistance
  4. How to get help on your down payment
  5. Take advantage of down payment assistance programs
  6. FAQs

Down payment assistance can help remove some of the barriers of buying a home. Knowing what programs are available can help you reach this important financial milestone.

A woman and man sit in a conference room on their laptops reviewing paperwork.

Sarah Li Cain • June 29, 2023

Affording a home can be challenging, but many programs exist to provide financial assistance. More specifically, closing costs or down payment assistance programs can help pave the way to homeownership. Some are grants, so there is no need to pay them back.

Many programs from state, local government, and nonprofits can help, like first-time home buyer grants (different from first-time home buyer loan programs). Even if you’re not a first-time home buyer, you may still be able to qualify for a variety of down payment assistance programs.

What is down payment assistance?

Down payment assistance is financial assistance that homebuyers receive to help cover costs related to purchasing a home. Unlike a first-time buyer mortgage loan, this assistance can cover closing costs and the down payment, not the mortgage itself.

It’s also different from other types of down payment mortgages you’ll come across, like FHA loans. That’s because down payment assistance programs offer funds towards the down payment itself.

You can find these types of down payment assistance programs through your state or local housing authority, and some nonprofits also offer these types of assistance.

Each organization has its own eligibility requirements, like primary residence requirements or income thresholds. These programs are available to first-time or other qualified homebuyers to help those who cannot otherwise afford a home.

How does down payment assistance work?

While each down payment assistance program tends to have its own processes and eligibility requirements, they generally work the same way.

For one, you will need to meet the minimum qualifications, which can include:

  • Being below a certain income threshold based on your household size
  • Purchasing a home that’s intended as your primary residence
  • Buying a home under a specific purchase price
  • Living in a particular district, county, or city

You can speak to a housing counselor or contact your local and state housing authority to find out if you qualify for the program that interests you.1

If you qualify, you can start the application process. You will likely need to provide documentation that shows you meet the qualification requirements. A housing counselor or representative will review your application and the home you want to buy to see if you meet their criteria.

If your application is approved, you’ll then find out how much money you will be given. Some programs offer a flat amount or a percentage based on the home’s purchase price. You should also receive the terms of the down payment assistance, like the interest rate for a loan or other conditions you need to meet to receive the funds.

Options for down payment assistance

You can choose from several types of down payment assistance programs. What you qualify for will depend on what is available in your local area, the home you want to buy, and your household income.

Grants

This type of down payment assistance is for qualified home buyers to help with the down payment and other closing-related costs. Those who receive funds typically don’t have to pay back the amount they receive, but you may have to meet specific criteria.

For example, many first-time home buyer grants require recipients to complete a housing counseling class approved by the U.S. Department of Housing and Urban Development (HUD).2

Some grants may only be available to low-income home buyers. The American Dream Downpayment Initiative, part of the HOME program, is one such program available in participating states.3 It offers an average of $7,500 in grants with the upfront costs of buying a home, including the down payment.

Matched savings programs

A matched savings program is meant for first-time home buyers who need help saving for a down payment or related closing costs.4 Depending on the program, it will match the amount you put towards savings (typically at a one-to-one ratio). So if you were to participate in a program that matches dollar for dollar what you contribute and you save $800, you’ll receive an additional $800. This amount needs to be used towards initial housing costs.

Several state government agencies offer matched savings accounts, also called Individual Development Accounts (IDA).4 These homeownership IDAs require participants to contribute over a predetermined period. Government agencies may also choose to work in partnership with local nonprofits and community organizations.

You will typically need to meet more strict income requirements and take a HUD-approved homebuyer education class for an IDA.

No-cost loans

Local and state housing agencies give these loans to help with down payments. If you can meet the criteria for a loan, you won’t need to pay any interest, and payment is typically deferred for several years as long as you meet residency requirements. The amount you receive depends on factors like your home’s purchase price and loan minimums.

Some programs may also offer forgivable loans through participating mortgage lenders, where your loan will be forgiven if you meet the requirements.5 Criteria may include meeting income thresholds and living in the home for a certain number of years.

How to get help on your down payment

Your best bet is to check out the Department of Housing and Urban Development, or HUD. The organization has resources on where to find relevant local, state, and nonprofit organizations. You can search by state—on each housing authority’s website, you should be able to get an overview of available programs, including the requirements you’ll need to meet to qualify.

You can also start your search by looking at nonprofits that partner with local governments.

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Take advantage of down payment assistance programs

Down payment assistance programs are designed to help you become a homeowner quicker. While applying requires a few extra steps, receiving either free funding or a zero-interest loan could be worth it.

Getting enough funds for the down payment and closing costs is part of the first steps in buying a house. Learn more about how to get a mortgage, including finding the type that best fits your needs.

FAQs

Does California have a down payment assistance program?

Yes, California has a homebuyer downpayment assistance program with options like zero-interest loans. Contact the California Housing Finance Agency for more information, including other relevant programs.6

Does Kentucky have a down payment assistance program?

Yes, Kentucky has down payment assistance programs, including grants for certain jurisdictions.7 Look on HUD’s website for an overview of the available programs in Kentucky.

What is Biden's $25,000 down payment toward Equity Act?

The Downpayment Toward Equity Act is a piece of legislation that was introduced to offer grants toward down payments for low- to moderate-income home buyers.8 If passed, qualifying applicants could receive up to $25,000 in assistance. The HUD would oversee the program, and local and state organizations would be the ones to approve and fund grants.

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1 Information from National Council of State Housing Agencies as of June 14, 2023: https://www.ncsha.org/housing-help/

2 Information from HUD's Resources for Individuals as of June 14, 2023: https://www.hud.gov/program_offices/administration/grants/grantssrc

3 Information from HUD's American Dream Downpayment Initiative as of June 14, 2023: https://www.hud.gov/sites/documents/20604_BROCHURE.PDF

4 Information from FDIC's Other Homeownership Products and Programs as of June 14, 2023: https://www.fdic.gov/resources/bankers/affordable-mortgage-lending-center/guide/part-2-docs/other-homeownership-products-programs.pdf

5 Information from Pennsylvania Housing Finance Agency's HOMEstead Downpayment and Closing Cost Assistance Loan as of June 14, 2023: https://www.phfa.org/programs/homestead.aspx

6 Information from California Housing Finance Agency as of June 14, 2023: https://www.calhfa.ca.gov/homebuyer/

7 Information from Kentucky Housing Corporation's Future Homebuyers as of June 14, 2023: https://www.kyhousing.org/Homeownership/Future-Homebuyers/Pages/Down-Payment-Assistance.aspx

8 Information from National Council of State Housing Agencies' Downpayment Toward Equity Act 2022 FAQs as of June 14, 2023: https://www.ncsha.org/wp-content/uploads/DPA-Toward-Equity-Act-FAQs-2022.pdf

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