It's a tough time to be a homebuyer. In an environment of historically high interest rates and stubborn listing prices, the dream of homeownership is as elusive as ever. But it's even harder to buy a home when you believe (incorrectly) that you absolutely must have 20% saved up for a down payment.
In reality, the average down payment for first-time homebuyers was just 8% in 2023, according to the National Association of Realtors. That's due, in part, to down payment assistance (DPA) programs. Such programs can drastically lower the amount you need to put up for your down payment, sometimes to as little as 3% or even 0% of the purchase price—depending on what type of home loan you qualify for.
Learn more: Guide to first-time homebuyers programs and loans.
Today, there are over 1,600 DPA programs across the United States, and their work has been instrumental in creating ownership access for populations that have historically had high barriers, including low-income buyers, people of color and rural buyers. Depending on your situation, one of these programs could deliver significant help to you. We’ll explain what you need to know.
What is down payment assistance?
Down payment assistance (DPA) is formal assistance that can help you cover your upfront homebuying costs and/or reduce the amount you have to contribute to the purchase. The majority of DPA funds are awarded based on income, and they're available through states, but you may also be able to find them through your county or local government or through nonprofit agencies.
Depending on the program, the assistance you qualify for could include loans (sometimes forgivable) or grants to cover some or all of your down payment and closing costs. This assistance is usually available at little-or-no cost to you.
The 4 main types of down payment assistance
Some DPA programs can be layered, meaning you can use more than one to help make your purchase affordable. Additionally, there are programs that partner with lenders to offer special loan terms. For example, the lender may offer low APR or waive the requirement to pay private mortgage insurance (PMI). Here are the main types of assistance to look for:
Loans
By far, the most common type of DPA is loans, which can also be referred to as second mortgages.
While the idea of having two mortgages might be intimidating, these down payment loans aren't much like the mortgages you're familiar with. They often have 0% APR with no payment due for 10 years or more. Your loan may also be partially or fully forgivable once you've lived in the home for a set period of time.
Grants
Another form of down payment assistance, although less common, is grants, which are funds that don't have to be paid back. Depending on the program, you might be eligible for grants up to a set dollar amount, or for a set percentage of your down payment or purchase price.
Savings match
Some programs match a portion of your savings for your down payment. If you deposit your savings into a qualifying bank account, you can get a match for a certain portion of each dollar you deposit or matching funds up to a set dollar amount.
Tax credits
The Mortgage Credit Certificate (MCC) is an annual income tax credit that can make homeownership more affordable by reducing your federal income tax. If you qualify for an MCC, it can be easier to meet the lender's mortgage affordability requirements. That's because lenders can take the MCC into consideration when they calculate your income and expenses.
How do you qualify for downpayment assistance?
Around 60% of all DPA funds are geared toward first-time home buyers, but help is available for repeat buyers, too. These are the other qualifications you usually have to meet:
- Income: The most common requirement for assistance is income-related, and many programs have a limit on how much you can earn based on your area median income.
- Past ownership: You generally can't qualify for first-time homebuyer down payment assistance if you've owned a home in the prior three years.
- Buyer contribution: You might be required to contribute some of your own money to cover a portion of the purchase.
- Debt-to-income ratio: The most common reason for rejections is high debt-to-income ratio, which means your monthly debt payments (including the new mortgage payment) are too high compared to your income.
- Credit scores: There may be a minimum credit score requirement of around 640, but some programs have far lower requirements.
- Employer/affiliation: Some employers and tribal organizations offer their own DPA programs. You could also qualify for a special DPA program if you're a teacher, first-responder or have a military affiliation.
- Residence: The home you're buying must be your primary residence.
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How to get down payment assistance
The order of steps to apply for down payment assistance will vary by program, but here's what you can generally expect:
- Research your options. Use resources like Fannie Mae's Down Payment Assistance Search tool to help you find out what you could be eligible for.
- Apply for the program. You may need to submit a long list of documents to confirm your eligibility, including bank statements, retirement account statements and copies of your pay stubs.
- Homebuyer education. If applicable, fulfill the housing counseling or education requirement for the program. Doing this as early in the process as possible will make you a more knowledgeable buyer.
- Find a lender: Choose a lender who is approved by the DPA program and apply for loan preapproval. Even if the list of approved lenders is short, be sure to compare multiple offers and negotiate the best available terms.
- Shop for a home: Follow the program timeline and use your loan preapproval and DPA information to search for a home you can afford.
- Make your purchase: Work with all of the involved parties (your lender, the DPA program, and your realtor) to make sure the DPA funds are properly applied to your purchase at closing.
Learn more: How to buy a home, step by step.
Where can you get down payment assistance?
You can find over 2,000 homebuyer assistance programs in the U.S. There are federal DPA programs available (not including grants) but the majority of programs are state-based, and many states have more than 50 different programs. According to the Urban Institute, the following states have the highest and lowest densities of DPA programs available as of 2023:
The 10 states with the highest density of DPA programs
Here are the states with the most DPA programs, per Urban Institute data:
- California
- Florida
- Texas
- Maryland
- New York
- Minnesota
- Colorado
- Massachusetts
- Pennsylvania
- Wisconsin
The 10 states with the lowest density of DPA programs
Here are the states with the least DPA programs, per Urban Institute data:
- Wyoming
- North Dakota
- Hawaii
- Vermont
- Delaware
- Maine
- Mississippi
- Alaska
- West Virginia
- Arkansas
To narrow down your options, visit the website of the U.S. Department of Housing and Urban Development (HUD) for a directory of housing assistance by state. For additional programs, check to see what's available at the local level through your county or a verified nonprofit organization, or what's offered by your bank or credit union.
The takeaway
If your resources are limited, there could be help for you. Thanks to down payment assistance programs, you don't have to be rich to buy a home. It’s true that it can take some time and effort to find an assistance program that works for you. But for some prospective homebuyers, these loan programs can be the best way to turn the dream of homeownership into a reality.
