Down payment assistance programs are a helpful resource many home buyers overlook. One of the most challenging aspects of buying a home is the required down payment. With home prices in the United States steadily increasing through much of 2021, this burden has only gotten worse. It is truly more challenging than ever for first-time homebuyer’s to afford a down payment for their dream home.
For example, lets say you’re purchasing a home with a purchase price of $370,000, which is a little lower than the median home price in the U.S. If you choose to make just a 10% down payment, you will have to come up with 37,000. In addition to this you will have to also factor in required closing costs, which can be anywhere from 2-6% of the total loan amount.
Unless you’re getting a zero down payment loan such as VA loans, or a no-closing costs mortgage loans, buying a home for the average first-time homebuyer is fast becoming an unaffordable endeavor for many.
Fortunately, down payment assistance (DPA) programs were created to help first-time home buyers and have enabled millions of Americans to buy their first home without breaking the bank.
In this article, you’ll learn about DPA programs, how they work, who qualifies for them, how to apply, and the various DPA programs across the country.
What Are DPA Programs?
DPA programs are designed to provide eligible home buyers with tax credits, loans, and grants to cover the cost of down payments and closing costs. The federal government sponsors most of these programs. Currently, there are approximately 2,500 DPA programs across the United States, with qualification requirements varying by state.
How Do These Programs Work?
Most of the time, DPA programs are available through state or local housing finance agencies and non-profit organizations. And they are typically designed for first-time home buyers. Sometimes, DPA may be offered with a mortgage program targeted at first-time home buyers. More importantly, the type of assistance a potential home buyer receives will vary by program.
However, the standard form of down payment assistance includes:
Some down payment assistance programs may offer grants to a home buyer to cover the cost of their down payment. Grants provide money that homeowners never have to repay. It’s actually considered a gift. As noted earlier and discussed in our mortgage overview, the down payment is usually the most significant outlay most families make. So getting some assistance in financing a down payment can be very meaningful.
Zero-interest, forgivable loans
This type of down payment assistance involves loans that are forgiven after a certain period such as five years. The loan does not have to be repaid as long as the borrower still owns and lives in the home at the end of the period.
These loans must be repaid over a certain period, such as 10 years. They make home ownership more attainable by spreading the down payment and closing costs over multiple years.
Who Can Get A DPA?
Most down payment assistance programs are designed to cater to the down payment needs of first-time home buyers. However, it is also possible for people buying their second home to receive down payment assistance. While most programs include first-time home buyers in their requirements, they typically refer to a first-time home buyer as an individual who hasn’t owned a home in the last three years. So, it is essential that you send in your applications even if you are a return home buyer.
Some assistance programs target specific groups, such as low-income, minority groups, teachers, police officers, or city employees. Regardless of the program or the group you fall into, most programs will have the following requirements for providing assistance:
- Take a home buyer education course.
- Meet certain income limits. Many programs target low and moderate-income residents. A borrower’s household income must be below a certain threshold
- Purchase a home in an approved location
- Stay below the maximum home purchase price which is usually a percentage of an area’s median home purchase price.
- Contribute some of your own money toward the purchase
- You must live in the home for a certain number of years (often 3 – 10 years).
How To Find DPA Programs?
If you need help with the financing of the down payment for your potential home or closing costs, here are some places you can check for DPA programs:
Your city and county governments
Many cities and counties offer DPA and other programs to boost homeownership. You should check your city website or visit the county office for more information.
The U.S. Department of Housing and Urban Development
Visit the local homebuying programs page on HUD’s website and select your state to see a list of programs.
HUD-approved housing counselors
The Consumer Financial Protection Bureau has a tool to help you find a housing counselor in your area.
Down Payment Resource
The company offers a tool on its website to find home buyer programs in your area. The online form requires you to provide contact information.
Interview mortgage lenders
Reach out to multiple lenders in your locality to determine if they offer a down payment assistance program and if so, to learn the eligibility requirements and program terms.
How To Apply for Mortgage DPA
Applying for a down payment assistance program is straightforward. Most programs will require you to apply through their website and include certain information. The type of information will include your credit score, debt-to-income ratio, household income, employment, and details of the potential home.
You can also apply for mortgage down payment assistance through your local lender. Most government-backed loans offer down payment assistance to eligible home buyers. It would be best if you considered speaking to your loan officer when looking to apply for a DPA program.
DPA Programs by State
Currently, there are more than 2,000 down payment assistance programs across the United States. Most of these programs are controlled and administered by state and local government and non-profit agencies at the community level. This section will list some popular down payment assistance programs in some of the larges states in the country.
New York Down Payment Assistance Programs
In New York, the state of New York Mortgage Association (SONYMA) offers several down payment assistance loans to eligible homebuyers. However, you must make use of the union mortgage program to finance the purchase of your home. By applying to SONYMA, you can borrow up to 3% of the home purchase price, up to a maximum of $15,000.
The upside of applying for down payment assistance offered by SONYMA is that the loans are interest-free and can be forgiven if you live in the home for at least 10 years. First-time home buyers who are recent graduates can receive up to $15,000 in interest-free loans from SONYMA if they buy houses in certain areas within upstate New York. You can check out HUD’s list for links to other city and area programs in New York.
New Jersey Down Payment Assistance Programs
If you are a first-time home buyer in New Jersey, you can get up to $10,000 in mortgage down payment assistance. This down payment assistance is offered to first-time home buyers through a forgivable interest-free loan. However, you must stay in the home for five years before the loan can be forgiven.
In addition, you must combine the loan with a primary mortgage program from the New Jersey Housing and Mortgage Finance Agency, which can be a 30-year FHA, USDA, or VA loan. To find more information about down payment assistance programs in the state of New Jersey visit the agency’s website. And consult HUD’s list of other homeownership assistance programs operating in the state.
California Down Payment Assistance Programs
California offers the MyHome Assistance Program through the California Housing Finance Agency (CalHFA), which is designed to provide down payment assistance to eligible home buyers within the state. The MyHome Assistance program, which takes the form of a second mortgage, provide funds for up to 3.5% of the home’s purchase price or up to $11,000 for FHA loan financed homes.
For conventional loans and USDA loans, the MyHome Assistance programs provide funds to cover up to 3% or up to $11,000 of the home purchase price. Even though MyHome is described as a first-time home buyer assistance program, return buyers may qualify if they haven’t owned or occupied their home in the last three years. Therefore if you have owned a home or homes in the past, you may qualify for MyHome down payment assistance.
Check out the MyHome Assistance Program webpage for more information. You’ll find some income limits there. If you’re a teacher or fire department employee, certain program limits may not apply. You should also take a look at HUD’s list for alternative down payment assistance programs for California.
Texas Down Payment Assistance Programs
There are several down payment assistance programs in Texas. However, the Texas Homebuyer Program stands out due to its inclusiveness. The Texas Homebuyer Program is designed to provide down payment assistance through a silent second mortgage. While the loan doesn’t feature monthly payments, it isn’t forgivable because it must be paid when you sell, refinance, or pay off your home mortgage. The Texas Homebuyer Program allows eligible home buyers to borrow up to 5% of their opening mortgage balance to cover the cost of down payment and mortgage closing costs. You can find more details about the program here or see HUD’s list of other homeownership assistance programs in Texas.
Florida Down Payment Assistance Programs
In Florida, down payment assistance programs are offered by the Florida Housing Finance Corporation (FHFC). Currently, the FHFC provides eligible home buyers three down payment assistance programs:
- HFA Preferred Grant: Eligible home buyers may get 3-5% of the home’s purchase price in the form of a non-repayable grant under this program.
- Florida Assist: You may be able to get up to $7,500 as an interest-free second mortgage. You don’t have to make payments because it only becomes repayable when you sell or refinance the home.
- Florida Homeownership Loan Program: This program lends up to $10,000, repayable in monthly payments over 15 years. The loan’s balance will come due in total if you sell, refinance, or stop using the home as a primary residence.
Learn more at the FHFC’s website. And check out HUD’s list of alternative down payment assistance programs for Florida.
Arizona Down Payment Assistance Programs
Arizona has several homeownership assistance programs, similar to other large states. The HOME PLUS down payment assistance program provides 30 year fixed-rate mortgages with a down payment grant for the home buyer. This grant can be used towards the down payment for the mortgage and/or closing costs. To be eligible borrowers annual income cannot exceed $113,000 and borrowers must have a credit score of 640 or better.
Rising home prices are clearly making the burden of down payments more daunting. However, there are a lot of down payment assistance programs in the United States that can help with this. Do some research as part of the home buying process to see if you qualify for a DPA program as it could meaningfully help reduce the burden!