How Can I Get Down Payment Assistance on My Mortgage?
Buying a home can feel overwhelming, but the good news is you don’t have to do it alone. For many starting the homebuying process, it can be a lot to handle, especially when considering the down payment.
Fortunately, plenty of down payment assistance programs can help make homeownership more affordable.
And if you're ready to skip to the next step, Rate’s Same Day Mortgage pre-approval can get you one step closer to your dream home quickly and simply.
What is down payment assistance?
Coming up with a down payment for a home purchase can be a challenge, especially if you're a first-time buyer or working with a tight budget. Our mortgage calculator can help you determine your mortgage budget.
Down payment assistance could help you cover upfront costs, whether it’s through grants, low-interest loans or other financial aid.
What are the different types of down payment assistance programs?
A wide range of down payment assistance programs are available for homebuyers.
These programs are typically offered by government agencies, nonprofit organizations and approved lenders. Down payment assistance can significantly reduce the amount you need to have upfront when purchasing a home.
Depending on the program, the assistance can come in different forms. Here are some of the main types.
Grants
Down payment assistance grants are essentially free money. You don’t have to repay them, and they are popular forms of assistance for homebuyers.
Grants are often offered by nonprofit organizations, state and local governments, and real estate organizations to help reduce the initial costs of homeownership.
For example, with Rate’s OneDown Program, you could get $2,000 or 2% of the purchase price, whichever is lower, in the form of a grant to help with a down payment. It doesn’t need to be paid back.
For many, these grants typically cover a portion of the down payment or closing costs, helping ease the upfront financial strain.
Forgivable loans
Forgivable loans are a fantastic option for those who can meet certain conditions. If you stay in your home for a specific number of years, the loan is forgiven, so you won’t have to repay it.
This type of assistance is designed to encourage long-term homeownership and is often distributed by government agencies like HUD (the U.S. Department of Housing and Urban Development) through local down payment assistance programs.
Deferred-payment loans
Deferred payment loans allow you to borrow money for your down payment without making payments on the loan until you sell the home, refinance or pay off the first mortgage.
While you will eventually need to repay this loan, it can be an excellent way to reduce upfront costs when buying a home.
Low-interest second mortgages
Low-interest loans are other types of down payment assistance. These loans have a lower mortgage interest rate than the standard home loan, which can save you money in the long run.
They are typically paid back alongside your first mortgage and help reduce the amount you need to save for a down payment.
Matched savings accounts
Matched savings programs, also known as individual development accounts, or IDAs, involve the homebuyer saving money in a dedicated account matched by the program.
For example, if you save $5,000, the program might match that so you have $10,000 to use toward your down payment. These programs often require members to meet specific criteria, such as attending financial literacy courses.
Who qualifies for down payment assistance?
Qualifying for down payment assistance depends on several factors, including your household income, credit score and the purchase price of the home you’re looking to buy.
Each down payment program has its own set of eligibility requirements, but there are a few common criteria that most homebuyers need to consider.
Income limits and household size
Most down payment assistance programs have income limits, meaning your household income must be below a certain threshold to qualify. The number of members who will live in the home as their primary residence can affect the amount of assistance you can qualify for, too.
These limits vary by program and location, so it’s essential to check with your local housing authority or nonprofit organization to see which assistance options are available in your area.
Credit score requirements
Your credit score is another important factor when it comes to qualifying for homebuyer assistance.
While many programs allow credit scores lower than traditional mortgage loan programs, you’ll still need a minimum credit score to qualify.
Some programs may allow a lower score if you complete a homebuyer education course or work with a participating lender.
Home purchase price limits
Programs often set a maximum price for the homes they’ll help with to keep things focused on affordable housing.
The price limits usually reflect what’s typical in your area, so they’re not the same everywhere.
Which programs are available for first-time homebuyers?
Many down payment assistance programs are designed specifically for homeowners buying their first homes.
First-time homebuyer programs are specifically designed to help reduce the barriers to homeownership by offering lower interest rates, grants and closing cost assistance.
These programs are available at the federal, state and local levels, making it easier for first-time buyers to afford a home.
State and local housing finance agency programs
Many states and cities offer homebuyer programs specifically for first-time buyers. These programs often provide down payment assistance, closing cost assistance or even a forgivable loan.
Be sure to check with your state housing authority or local real estate agents to see which approved lender options are available in your area.
Federal mortgage programs with low or zero down payment options
Programs like FHA loans and USDA loans are excellent options for first-time buyers and are also available to repeat buyers. FHA loans offer a lower down payment requirement, and USDA loans are available for those buying in rural areas with no down payment required.
These programs also tend to have lower eligibility requirements, making them more accessible.
Specialized assistance programs for teachers, first-responders and Veterans
Programs designed for community members such as teachers, first-responders and military Veterans and their families are available through many state and local agencies. VA home loans for Veterans are also available through many lenders, some with 0% down payment options.
How to apply for down payment assistance
Applying for a home loan is a critical step in the homebuying process. It can feel overwhelming, but with the right information, it doesn’t have to be.
You’ll need to gather several documents, choose the right lender and get pre-approved for a mortgage before you start hunting for a home.
Here's what the process looks like.
Step 1: Check your local program availability and eligibility
Contact a loan officer to help you identify a suitable program, then review the eligibility requirements and gather necessary documents, such as proof of income.
Most programs also require you to complete a homebuyer education course.
Step 2: Choose a mortgage lender
The right lender for your situation will depend on a number of factors, including the type of loan you seek, your credit score and location. Compare lenders based on whether they offer loans to fit your needs, then compare mortgage interest rates, fees and other costs. Some lenders don’t offer all loan types in certain states or locations, so you’ll want to research those details as well.
Step 3: Gather required documentation
When applying for a home loan, you’ll need to provide proof of income, tax returns, bank statements and other financial documents.
These are used by lenders to determine how much the borrower can qualify for and whether you meet conditions for the loan amount.
Be mindful that your first mortgage application should reflect all necessary documentation to avoid delays.
Step 4: Get mortgage pre-approval
Getting pre-approved for a mortgage gives you a significant advantage in the real estate market. Not only does it show sellers that you’re serious, but it also helps you understand exactly how much you can afford.
Rate’s Same Day Mortgage pre-approval allows you to get pre-approved quickly and easily, making the process even smoother.
Once pre-approved, you’ll have a clearer picture of your home purchase price and expected monthly payments.
Frequently asked questions
Do you have to pay back down payment assistance?
Some down payment assistance options such as grants and forgivable loans do not have to be repaid. Other assistance options can be deferred and only have to be repaid when the property is sold, refinanced or title is transferred.
Can you use down payment assistance for closing costs?
Though the benefits vary, down payment grants can be used toward a variety of home purchase expenses, including down payment, closing costs, and even renovations or repairs in some cases.
Is down payment assistance only for first-time buyers?
Down payment assistance is designed for first-time buyers, but even if you’ve owned a home before, you could qualify if you haven’t owned one in the past three years.
This rule is helpful for people who are getting back into the housing market after some time away, like after selling a home or going through a major life change.
How long does it take to get approved for down payment assistance?
You might be wondering when the down payment assistance kicks in. Typically, these funds are available at the time of closing, and they’re applied directly to the costs associated with buying the home.
Make sure to read disclaimers, coordinate with a qualified lender, like Rate, and real estate agent to ensure everything is lined up before closing day.
Rate is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the US Department of Agriculture, or any other government agency.
Rate’s Same Day Mortgage promotion offers qualified customers who provide certain required financial information/documentation within 24 hours of locking a rate on a mortgage loan the opportunity to receive a loan approval within 1 business day of timely submission of documentation and does not suggest that the borrower will receive funding on the same day as their application submission. cannot guarantee that a loan will be approved or that a closing will occur within a specific timeframe. Applicant subject to credit and underwriting approval. Restrictions apply. Visit rate.com/same-day-mortgage for terms and conditions.
