What is down payment assistance and how to apply for it

In fact, the average down payment for first-time homebuyers was just 8% in 2023, according to the National Association of Realtors. This is partly due to Down Payment Assistance (DPA) programs. Such programs can significantly reduce the amount you need to pay for a down payment, sometimes as much as 3% or even 0% of the purchase price — depending on the type of down payment. Home loan You are eligible for.

Learn more: A guide to first-time home buyer programs and loans.

Today, there are more than 1,600 DPA programs across the United States, and their work has been instrumental in creating access to ownership for populations who have historically faced high barriers, including low-income buyers, people of color, and rural buyers. Depending on your situation, one of these programs can be of great help. 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 home purchase costs up front and/or reduce the amount you have to contribute toward the purchase. The majority of DPA funds are awarded based on income, and are available through states, but you may also be able to find them through county or local government or through nonprofit agencies.

Depending on the program, the assistance you qualify for can include loans (sometimes forgivable) or grants to cover some or all of your down payment and closing costs. This help is usually available to you at little or no cost.

The four main types of down payment assistance

Some DPA programs can be tiered, meaning you can use more than one program to help make your purchase more affordable. In addition, there are programs that partner with lenders to offer special loan terms. For example, the lender may offer a lower annual interest rate or waive the payment requirement Private mortgage insurance (Purchasing Managers' Index). Here are the main types of help to look for:

Loans

By far, the most common type of DPA are loans, which may also be referred to as second mortgages.

Although the idea of ​​having two mortgages may be scary, these down payment loans are nothing like the mortgages you know. They often have a 0% APR with no payment due for 10 years or more. Your loan may also be partially or fully forgiven once you have lived in the home for a specified period of time.

Grants

Another form of down payment assistance, although less common, is grants, which are money that do not have to be repaid. Depending on the program, you may be eligible for grants up to a specific dollar amount, or for a specific percentage of the down payment or purchase price.

Savings match

Some programs match a portion of your savings toward the down payment. If you deposit your savings into an eligible bank account, you can get a percentage matching a specific portion of every dollar you deposit or matching funds in a specific dollar amount.

Tax credits

A Mortgage Credit Certificate (MCC) is an annual tax credit that can make homeownership more affordable by reducing federal income tax. If you qualify for an MCC, it may be easier to meet a lender's mortgage affordability requirements. This is because lenders can take MCC into account when calculating your income and expenses.

How do you qualify for down payment assistance?

About 60% of all DPA funds are directed toward first-time homebuyers, but assistance is available to repeat buyers as well. These are the other qualifications you usually have to meet:

• income: The most common requirement for assistance is related to income, and many programs have a limit on the amount you can earn based on the average income in your area.
• Previous ownership: You generally cannot qualify for first-time home buyer down payment assistance if you have owned a home in the previous three years.
• Buyer contribution: You may be asked to contribute some of your own funds to cover part of the purchase.
• Debt to income ratio: The most common reason for denials is a high debt-to-income ratio, which means your monthly debt payments (including your new mortgage payment) are too high Compared to your income.
• Credit scores: There may be a lower limit Credit score requirements About 640, but some programs have much lower requirements.
• Employer/Affiliation: Some employers and tribal organizations offer their own DPA programs. You can also qualify for a special DPA program if you are a teacher, first responder, or have a military affiliation.
• residence: The home you purchase must be your primary residence.

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:

1. Research your options. Use resources like Fannie Mae Down payment assistance finder To help you figure out what you might qualify for.
2. 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.
3. Home buyer education. If applicable, meet the program's housing or education counseling requirements. Doing this as early in the process as possible will make you a more knowledgeable buyer.
4. Find a lender: Choose a DPA-approved lender and apply for loan pre-approval. Even if your list of approved lenders is short, be sure to compare multiple offers and negotiate the best terms available.
5. Shop for a home: Follow the program timeline and use your loan pre-approval and DPA information to search for a A home you can afford.
6. Make your purchase: Work with all parties involved (your lender, the DPA program, and your Realtor) to ensure that DPA funds are properly applied to your purchase at closing.

Learn more: How to buy a house step by step.

Where can you get down payment assistance?

You can find over 2,000 home buyer assistance programs in the United States. Federal DPA programs are available (not including grants) but the majority of programs are state-based, and many states have over 50 different programs. According to Urban Institutethe 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 largest number of DPA programs, according to Urban Institute data:

• ca
• 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 lowest DPA programs, according to Urban Institute data:

• Wyoming
• North Dakota
• Hawaii
• Vermont
• Delaware
• who
• Mississippi
• Alaska
• West Virginia
• Arkansas

To narrow down your options, visit the U.S. Department of Housing and Urban Development (HUD) website for… Housing Assistance Guide By the state. For additional programs, check to see what's available locally through your county or a verified nonprofit, or what your bank or credit union offers.

Ready meals

If your resources are limited, there may 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 may take some time and effort to find an assistance program that works for you. But for some potential home buyers, these loan programs can be the best way to turn the dream of home ownership into a reality.