Not everyone has the financial means to put 20 percent down on a home purchase. The good news is, forking over 20 percent upfront is not a requirement to buy a home. Plus, you might also be eligible for down payment assistance programs.

How do down payment assistance programs work?

Down payment assistance can potentially give you money that can help you afford a down payment, or it can help with closing costs, which are the fees and charges you pay when you finalize your mortgage. These total approximately 2 percent to 5 percent of the loan principal (and more when you factor in the escrow for insurance and taxes). For instance, on a $200,000 loan, the closing costs could be around $4,000. If all of your money has gone to saving for a down payment, you might need help paying for closing costs.

While a few programs exist at the federal level and even with some individual lenders, the majority of down payment help is offered at the local level through state, county and city government programs, and come in the form of a loan, grant or matched savings.

Down payment assistance eligibility requirements

The vast majority of down payment assistance is offered to first-time homebuyers. Many cities and counties have other housing programs available, but down payment assistance is typically reserved for those who have not owned a home in the last three years.

Many programs restrict owners of rental or investment properties from participating, so you’ll need to be a first-time homebuyer (or haven’t owned a home in the past three years) and the home should be your primary residence. If you’re unsure if you qualify, contact the program before you apply.

Types of down payment assistance

  • Grants: Grants are a type of housing assistance that provides a one-time cash sum, often in the form of a no-interest second loan, to cover all or part of a down payment or closing costs. The funds don’t have to be repaid.
  • Low-interest loans: These are similar to grants, but they must be repaid, usually over the course of a few years. Since you’ll be repaying this loan in addition to your regular mortgage, you’ll have a higher monthly payment.
  • Deferred-payment loans: These types of loans generally don’t charge interest, but usually need to be repaid in full when you sell your home or refinance your mortgage. Many times, these are zero-interest loans, which means you are only responsible for repaying the amount you borrowed initially.
  • Forgivable loans: These are similar to other kinds of assistance, but you might never have to pay them off. Generally, forgivable loan debt is erased after a certain period of time so long as you still own the home and are up-to-date on your mortgage payments.
  • Individual Development Accounts (IDAs): Also called a matched-savings account, with an IDA, the account holder’s contributions are matched by either private or public money. To get this kind of account, there are typically income caps and employment requirements, and participants usually need to complete free financial literacy training.

Some mortgage lenders offer their own down payment assistance. For example, In many states, Chase offers up to $3,000 that can go toward closing costs and down payment needs. While this program is just for first-time homebuyers, it does have other stipulations: You’ll need to get a 30-year fixed-rate loan and live in the home as your primary residence. You’ll also need to attend a homebuyer education course to receive the full amount.

What mortgages can down payment assistance be applied to?

Down payment assistance is available for all kinds of mortgages. Government-backed mortgage programs like FHA loans, VA loans and USDA loans often come with their own down payment assistance built-in. You can also apply for down payment assistance with conventional mortgages.

Individual lenders are likely to have their own requirements and restrictions when it comes to how down payment assistance is accounted for and applied to your loan. So, if you know you’re planning to take advantage of a down payment assistance program, it’s a good idea to talk to prospective lenders about how this will affect your mortgage.

How to find down payment assistance programs

Most payment assistance programs are local, though there may be a few statewide ones too. Some of the places to check out for down payment assistance include:

  • State housing finance authority: Many state housing finance authorities (HFAs) offer homebuying assistance and education. Find your state’s HFA here.
  • City and county government programs: As a means to boost homeownership, many counties and cities offer down payment assistance programs for first-time homebuyers. Check your municipality’s website for more, or speak to your loan officer to get more details about local DPA programs in your region.
  • U.S. Department of Housing and Urban Development (HUD): Check HUD’s website for local homebuying programs by state. Every state also has HUD-approved counselors who will simplify the finer points of homebuying and help you find financial assistance.
  • Down Payment Resource: Down Payment Resource provides a plethora of resources for homebuyers, real estate agents and lenders, including an eligibility and lookup tool.

How to apply for down payment assistance

There is no shortage of down payment assistance options, but there is also no universal application that will go to all of them. Because of this, you will need to apply to each one individually. Depending on the program, you might call to see if you are eligible, complete the application online or in-person and possibly take certain education courses.

Some programs require you to have a specific loan to qualify. For instance, you might need an FHA loan instead of a conventional loan.

Aside from being a first-time homebuyer, eligibility is usually based on income. Many programs target low- to moderate-income earners, so if you are in a higher bracket, you might not qualify. You might also need to contribute a certain percentage of your own income to get the assistance.

Pros and cons of down payment assistance programs

There are a lot of benefits to receiving down payment assistance, but it is not all upside. Here are some key things to keep in mind.

Pros

  • Can help you become a homeowner faster
  • Can save you money upfront
  • Can help you afford more house or get more favorable loan terms

Cons

  • Can cost you more in the long run if it’s an interest-bearing loan
  • Can be time-consuming due to the amount of down payment assistance available; you’ll need to do your research and apply to each one individually
  • Not everyone qualifies
  • You need to be even more careful about sticking to your budget and refrain from using assistance to overextend yourself financially
  • You might be required to occupy the home for a minimum number of years in order to have certain types of assistance fully forgiven

Alternative forms of down payment assistance

Not everyone qualifies for down payment assistance programs. If you have owned a home in the last three years, your income is too high or you are planning to rent out the property or otherwise use it as an investment, you might not qualify for many programs.

However, there are other housing programs you might qualify for. Visit HUD.gov/states, select your state and click “Learn About Homeownership.” From there, you can find ways to avoid foreclosure, find home counseling services and get money for home renovations or repairs. Depending on where you live and your needs, you might find housing resources geared towards seniors, disaster relief and help to pay utility bills.

Home assistance programs are vast and vary by needs and location. You might find that if you do not qualify for down payment assistance, you might be eligible for assistance in other ways.

Down payment assistance FAQ

  • Since programs are usually administered at the local level, the time it takes for them to disburse funds can vary widely. It’s best to initiate your research and applications as soon in the home-buying process as possible to give yourself as much runway as you can. Your lender will work directly with the assistance program to secure the necessary funds.
  • This, too, depends on where you are. Terms and funding amounts are determined primarily by individual states — find out what’s offered in your area, and what you need to do to apply, by contacting your state’s HFA.
  • In most cases, yes, you can use multiple sources of down payment assistance, provided you qualify. Check with your lender to ensure you’re obtaining a mortgage through a program that allows for more than one source of assistance.