Our experts answer readers' home-buying questions and write unbiased product reviews (here's how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.
Courtesy Laura McCamy
- When my wife and I bought our first home, we could afford it because of down payment assistance.
- Our DPA loan will be forgiven if we stay in our home for 30 years.
- Your city or state will have unique rules for its DPA program — and it may require patience.
When my wife and I started looking for our first home in 2004, we needed all the help we could get. We scrounged what we could for a down payment, but it wasn't enough to get our foot in the door with mortgage lenders in a competitive market. Fortunately, we found a down payment assistance program that made buying a home possible.
Our city isn't unusual. Many mid-sized to large cities in the US provide some type of assistance for first-time home buyers. Even if the community where you wish to purchase doesn't offer DPA, every state has a down payment assistance program. Some states, like California and New York, even have mortgage agencies that provide low-cost financing for qualified buyers.
Here's what we learned as first-time homebuyers.
Down payment assistance comes with several requirements
Each assistance program is different, but many include some of these standard features and restrictions:
First-time homebuyers: Most programs support only first-time homebuyers. You generally can't have owned a home for at least three years to qualify.
A second mortgage: Government financing is a loan (or, in rare cases, a grant) to boost your down payment or help with closing costs. A DPA loan becomes your second mortgage. These loans can range from a few thousand dollars to more than $200,000 in expensive markets and will be disclosed to the lender for your first mortgage.
Favorable repayment terms: Some loans require payments immediately; others offer a grace period of up to 30 years before you have to start repaying the loan. Sometimes, the DPA program may forgive all or a portion of the loan if you stay in the home for a minimum number of years.
Buyer contribution: Buyers usually have to put some money down to qualify for these loans. The minimum buyer contribution may be a percentage of the purchase price, often between 1% and 3%, or a set dollar amount.
Owner-occupied: Down payment assistance and second mortgage programs are generally only available for a primary residence and may be limited to single-family houses or condos.
Income caps: Many programs are only available to people whose income is at or below 80% of the community's adjusted median income. However, there are programs for moderate-income buyers in some areas. Some places have tiered programs, with higher dollar amounts for lower income brackets. In places where housing is expensive, the income caps can be higher. For example, San Francisco's Downpayment Assistance Loan Program gives loans up to 200% of AMI.
Buyer education: Many state and local programs require you to take a homebuyer education class.
The program in my city provided 2½ times our down payment. We don't have to repay the second mortgage until we sell our home, which was crucial to affordable mortgage payments, especially in the early years. If we stay for 30 years, our loan will be forgiven.
Down payment assistance requires patience
Many cities and states have special programs to help military veterans purchase homes. If you're a veteran, you might qualify for assistance even if you aren't a first-time home buyer. You could also qualify for a DPA program based on your job. For instance, San Francisco has special programs to help local first responders and educators buy homes in the notoriously pricey city.
In addition to the income and down payment requirements listed above, some local homebuyer's assistance programs are only open to people with a good credit score. In addition, you may need to work with a lender approved by the program.
Local homebuyer programs often have limited funds and may stop or pause if they run out of money. You might have to enter a lottery for your local program. Patience and persistence are vital to securing a loan.
Picking up the phone and talking with a staffer at your local government program may be the best way to connect with financial assistance. The person on the other end of the line will likely be an excellent resource on local DPA programs.