Down Payment Assistance (DPA)
Down payment assistance programs have many benefits, and they can be a game-changer in terms of making homeownership possible. They can help you become a homeowner sooner since you don’t have to build up as much savings upfront. Some Down Payment Assistance (DPA) Program provides down payment assistance to eligible first-time homebuyers of up to $20,000. This depends on the state, lender, program, geographical location, loan, size, and type. All DPA programs are not the same as some require repayment and some do not. There are DPAs for first time home buyers only and DPAs for any home buyer.
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Down payment assistance programs come in many forms, but they share a goal: reducing the upfront costs of buying a home. Depending on the program, you may or may not have to repay the money.
What are DPA Programs?
While a 20% down payment is often cited as the gold standard, many mortgages —including conventional mortgages, permit much lower amounts. There are many loan types, with a range of pros and cons, that affect how much you need to put down.
Down payment assistance programs come in different forms, from grants to low-cost loans. All are designed to help homebuyers cover the upfront costs of buying a home, particularly the down payment, though some could also help with closing costs.
These programs are especially useful for first-time homebuyers who may struggle to meet typical down payment requirements. In fact, some programs are only available to first-time home buyers.
Types of Down Payment Assistance Programs
There are a variety of down payment assistance programs, but these are the most common types:
Grants Typically reserved for first-time homebuyers, grants work like a gift: You don’t have to repay the money. The exception is if you don’t remain in the home for a required number of years; if you move out earlier than agreed upon, you must pay it back.
Grants for helping with down payment costs might be offered by a range of entities, including federal agencies, employers, nonprofit organizations and government housing authorities.
Forgivable Loans This type of program is actually structured as a second mortgage that’s large enough to cover your down payment. The loan is forgiven—meaning you don’t have to repay it—if you meet requirements to remain in the home for a set number of years. If you sell and move out before then, you’ll have to pay back the loan.
Deferred Loans This is also a second mortgage intended to cover the size of your down payment. Like forgivable loans, you don’t pay anything while you’re living in the home with a mortgage. The difference: The loan does have to be paid back. However, you don’t start making payments until you’ve paid off your first mortgage, or until you sell or refinance the home. Homeowners typically repay deferred loans with proceeds from selling the home when they move.
Low-Interest Loans Another option is low-interest loans, sometimes called down payment loans. This is another type of second mortgage, which comes with a low (or possible no) interest rate and is used to cover your down payment costs. You repay it in monthly installments, like your mortgage, which means making two monthly housing payments.
Lender-Specific Programs Some lenders offer their own programs for borrowers who need down payment support. This is sometimes done as a dollar-for-dollar match, where if you put down money, the lender will put down the same amount. Some lenders will provide a credit toward a down payment for eligible buyers in certain locations.
Example: You have saved up $15,000 for a down payment. With a dollar-for-dollar lender match program, the lender would provide $15,000, giving you a total down payment of $30,000.
Down Payment Assistance Program Requirements
Each type of down payment assistance program has its own restrictions, but applications typically need to meet the following criteria:
- Income limits: To ensure that down payment assistance programs help homebuyers who truly need it, there may be income maximums to qualify.
- Credit score requirements: Down payment assistance programs may require applicants to have a minimum credit score of 620 to help ensure they’re prepared for a mortgage. Different programs may have different credit score requirements, so be sure to check the requirements of the program you’re considering.
- First-time homebuyer status: Some, though not all, down payment assistance programs require applicants to be first-time homebuyers. That said, some programs will consider you a first-time buyer if you haven’t owned a home for the past three years.
- Primary residence requirements: Down payment assistance programs usually require that applicants use the property as their primary residence and/or they remain in the home for a set time period (anywhere from three to 10 years).
- Completion of homebuyer education course: A frequent requirement of down payment assistance programs is taking a course on becoming a homeowner. While it sounds like a headache, it can actually provide helpful information on the process.