Down Payment Assistance for First-Time Home Buyers

Down Payment Assistance for First-Time Home Buyers
Down payment assistance makes homes more affordable for home buyers.


Down payment assistance programs remove obstacles for first-time home buyers, and keeps them from using 10 years of their life saving for a downpayment.

The programs also help U.S. neighborhoods to prosper.

When renters become homeowners, communities benefit. New homeowners make home improvements, increase curb appeal, and raise property values. Plus, they spend money in local stores and businesses, which generates taxes for the municipality.

Homeownership is the centerpiece in the U.S. economy – both nationally and locally – so the government has incentives to promote it.

This is where down payment assistance comes in.

This article covers everything you need to know about down payment assistance programs and how to find one to buy your first home.

What is Down Payment Assistance?
Down payment assistance (DPA) is a home-buying program that gives cash grants, low-rate loans, and tax incentives to eligible buyers.

Examples of downpayment assistance include:

$25,000 cash grant for a down payment on a home
Cash for mortgage discount points and other closing costs
Mortgage loans at subsidized interest rates
Forgivable loans for a downpayment on a home
State and local tax credits for home buyers
Other downpayment assistance programs grant cash for specific uses, such as making home repairs and renovations which raise property values.

Downpayment assistance programs are funded by government agencies, private foundations, and local charities. Awareds vary based on where you live, how much you earn, and how soon you apply.

How Does Down Payment Assistance Work?
Down payment assistance programs work by making homeownership more affordable to first-time home buyers.

Down payment assistance programs are administered at federal, state, and local levels. Federal DPA programs include first-time home buyer tax credits, cash grants to buy homes, and interest rate subsidies that maximize home affordability.

Most DPA programs, though, are administered by state and local governments, and private entities and charitable organizations.

Non-federal programs often prescribe specific mortgage types to buyers, such as the FHA mortgage; and require additional paperwork separate from the lender’s mortgage application.


Some DPA programs target professionals, such as teachers, nurses, and EMTs. Others are available to any home buyer in a specific neighborhood or street.


Who Qualifies for Down Payment Assistance?
There are more than 3,000 down payment assistance programs available nationwide. The majority of DPA programs target first-time home buyers.

Federal DPA programs, such as the proposed $25,000 Downpayment Toward Equity Act, assist lower-income first-time buyers and often include additional eligibility criteria. The Good Neighbor Next Door program, for example, is limited to teachers, nurses, law enforcement members, and EMTs.

Other programs may require home buyers to live in their new home for 5 years, at minimum.

On the state and local levels, down payment assistance programs are often geography-based and available to buyers in specific cities, communities, or neighborhoods only.

Down payment assistance programs aren’t mean to replace a buyer’s primary mortgage. Rather, DPA programs enhance a buyer’s mortgage to make owning a home as affordable as it can be. Therefore, to qualify for down payment assistance, a home buyer must also qualify for their mortgage.

5 Types of Down Payment Assistance
Home buyers can apply for 5 types of down payment assistance programs.

1. Cash Grants For Your Down Payment
Cash grants account for the majority of down payment assistance programs. The typical first-time home buyer cash grant award is around $10,000.

Cash grant down payment assistance doesn’t require home buyers to pay it back. However, grant programs are meant to build community and foster economic growth, so they commonly contain a 5-year clause that states that the buyer must live in the home for five years or the grant must be repaid at least partially.

The proposed Downpayment Toward Equity Act is a cash grant program with a 5-year payback period. It gives first-time buyers up to $25,000 in cash for downpayment, closing costs, and other home purchases.


2. Closing Costs Credits
Closing cost credits are a cash grant, paid at closing, that reduce the cash required to buy a home. They can be applied to mortgage closing costs, real estate taxes, title fees, and any other cost associated with buying a home.

When you receive closing cost credits as a home buyer, you are not required to repay them. Some programs, however, require buyers to maintain residence for 36 months, at least.

The most common type of closing cost credit is Seller concessions.

Seller concessions is when the home seller contributes a portion of its home sale proceeds toward the buyer’s closing costs. Seller concessions can range from a few hundred dollars to 6 percent of the purchase price.

Author’s note: the no closing cost mortgage is not mortgage type. It is not a down payment assistance program.

3. Interest Rate Reductions
Some cities make homeownership more affordable by subsidizing low interest rates for home buyers through cash grants for mortgage discount points.

Mortgage discount points are a one-time, up-front fee paid at closing in exchange for a lower interest rate. One discount point

4. Property Tax Bill Credits
Property tax bill credits and tax reductions are a variation on down payment assistance. They’re available to all home buyers – not just first-timers.

Tax bill programs award tax abatements and tax relief to home buyers in specially-designated zones of a city. Buyers receive favorable, long-term tax treatment, lowering their tax bill and saving money.

Some states and counties issue mortgage credit certificates for up to $2,000, which offset local property tax bills dollar-for-dollar.

5. Down Payment Loans
The least common form of down payment assistance is the interest-free down payment loan.

Interest-free down payment loans are secured as liens on your home and don’t require a monthly payment. Down payment loans are repaid from your home sale proceeds when you sell your home or choose to refinance it.

How to Find Down Payment Assistance to Buy Your Home
There is no comprehensive national database for down payment assistance programs. Some home buyer programs are applied automatically, including property tax abatement and federal tax credits to first-time buyers. Other down payment assistance programs can only be claimed with an application.

Local and state DPA programs aren’t advertised often, and they’re promoted poorly.

The U.S. Department of Housing and Urban Development (HUD) maintains a semi-complete list of programs listed by state, county, and city.

Prior to applying for down payment assistance, review the terms and conditions to ensure they mesh with your financial goals. For example, some DPA programs require buyers to finance with an FHA mortgage. Others may enforce a residency requirement of five years or more.

Down payment assistance applications can also slow your home purchase, adding weeks or months to your home purchase timeline.

How Much Money Do You Need For a Down Payment?
Home buyers don’t need any money for a down payment when they buy a home because of down payment assistance programs and low- and no-downpayment loans.

According to the National Association of REALTORS® 2021 Profile of Home Buyers and Sellers:

87% of home buyers use conventional mortgages, which allow for 3% down
7% of home buyers use FHA mortgages, which allow for 3.5% down
5% of home buyers use VA mortgages, which allow for no money down
1% of home buyers use other loans, including the 100% USDA mortgage
The median first-time home buyer down payment is 6 percent.


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