How Does Down Payment Assistance Work?

Down payment assistance programs can speed up the process and help you get into a home by giving (or loaning) you money for a down payment. In some cases, this money will have to be repaid, though possibly not until you sell your home; in other cases, it never has to be repaid, making it literally “free money.”

The trick is knowing which type of program fits your situation before you apply.

There are currently over 2,619 active down payment assistance programs across local and national government agencies, lenders, and banks.[1] If you qualify for down payment assistance, you have a lot of options— and you may also have a lot of company. Our recent study found that if mortgage rates don’t fall below 6% in 2026, one in five buyers plans to look into down payment assistance.

Before you start applying, you need to know three things: which type of program fits your plans, whether you qualify by income, and what strings come attached to the money.

Types of down payment assistance programs

There’s a wide variety of down payment assistance programs, but they basically fall into two categories: loans that you have to pay back, and grants that you don’t have to pay back.

About 63% of programs are reserved for first-time buyers, but 980 programs (37%) are open to repeat buyers, too.[2] Most come with income limits tied to Area Median Income (AMI), which we'll cover below.

Chris Kuclo, Senior Director of Agent Relations and Sales at Best Interest Financial, says most buyers don't realize DPA is even on the table until a loan officer brings it up.

"There are plenty of options right now for somebody below a 640 credit score, but that's when you start getting into the assets. If somebody's over 640, it becomes a lot easier around assets. We can do down payment assistance programs a lot easier."

Liz Reese, a mortgage expert at ReeseSquared Mortgage with nearly two decades in the industry, advises her clients that both types of DPA programs have their uses, but can come with drawbacks.

“Down payment assistance can be helpful if it’s the only way you can get into a house,” says Reese. “But the thing to remember, nothing is free. Some places will lend you the money for closing costs and a down payment. Usually those loans are repayable.”

Grants

Grants do not have to be repaid, though some grants may come with conditions.

For example, some grant programs will put a lien on your home in the amount of the grant, and remove it only after you’ve lived there for a specific period of time. This period can be as short as 3-5 years, though in New York City, their down payment assistance program (which offers up to $100,000) requires you to stay in the home for 15 years to achieve full forgiveness.[3]

But Reese cautions that buying with this type of down payment assistance grant usually restricts which homes you can buy.

“Occasionally we come across a grant program where, if you income qualify, they’ll give you (for free) 2% of a 3% down payment,” she explains. “The catch here is the max loan amount is $350K and depending on where you live, won’t get you much.”

Forgivable loans

Forgivable loans are essentially like a second, smaller mortgage that covers your down payment. 

These loans generally have a 0% interest rate and are fully forgiven if you meet certain conditions. Usually, you’ll need to live in the home for up to five years before the lender forgives the loan; if you sell before the end of that period, the loan will have to be repaid.

Liz Reese says these down payment loans are fine, but can up your costs elsewhere.

“They typically have higher closing costs and higher rates, so fundamentally you're paying for it somewhere,” she says. “I think if it’s the only way, then great, but if you can put a little bit of skin in the game, it’s better for you overall.”

Deferred payment loans

Like a forgivable loan, this is basically a second, smaller mortgage to cover your down payment. The difference is that this loan will have to be paid back eventually.

You typically don't owe anything until you sell or refinance, and the balance doesn't accrue interest. No monthly payment, no growing balance — just a bill that comes due when you leave the home.

Matched savings programs

These programs are usually run by the government or community organizations, and will match any money you save toward your down payment with an equivalent contribution, essentially allowing you to save twice as fast. Think of it as a 401(k) for your down payment.

The trade-off: you have to save consistently, and matched amounts are typically capped.

Low-interest loans

This is a specialized conventional loan that covers your down payment. It does accumulate interest (though likely at a lower rate than your primary mortgage), and it comes with a monthly payment.

Quick comparison

» RUN THE NUMBERS: See what an FHA loan would cost you with our FHA loan calculator.

Which DPA fits your situation?

With 2,600+ programs to choose from, the fastest way to narrow the field is to start with what matters most to your finances.

• If you plan to stay in the home 5+ years: Grants and forgivable loans are the best fit. You'll meet the occupancy requirement and the money becomes free.
• If you might move or refinance within a few years: A deferred payment loan is safer. You'll repay it eventually, but you won't lose forgiveness benefits the way you would with a grant.
• If you have some savings, but not enough: A matched savings program can double your progress without restricting which home you buy.
• If you have decent income but no down payment: A low-interest second loan gives you the most flexibility. You'll have a monthly payment, but fewer strings attached.
• If your credit score is borderline: Talk to a lender first. Kuclo notes that buyers above 640 have significantly more DPA options. Below that, asset documentation matters more than the score itself.

No matter which type you land on, read the fine print. The best DPA program is the one whose strings you can actually live with.

How to find DPA programs in your state

Start broad and narrow down: look at national programs first, then state, then city-level options. Finally, ask your lender what they offer.

"Most lenders offer some sort of DPA program," says mortgage expert Liz Reese. She notes that cities sometimes offer discounted home prices to buyers who meet income guidelines, with the city holding the discount as a silent lien. These programs typically require the home to be your primary residence.

Where to search

• National databases: Start with the Department of Housing and Urban Development (HUD) website and Down Payment Resource. which maintains a nationwide directory of programs
• State programs: Check your state's Housing Finance Agency (HFA)
• Local programs: Search for city/municipal government homeownership resources and local housing nonprofits
• Your lender: Many banks have their own DPA programs — for example, Wells Fargo offers down payment assistance for first-time homebuyers

Step 1: Check your AMI

Nearly every DPA program uses Area Median Income (AMI) to determine eligibility. AMI is the midpoint of household incomes in your metro area, published annually by HUD.[4] Programs typically cap eligibility at 80% of AMI for the most generous assistance, with some programs going up to 120% or 140% of AMI in high-cost markets.[5]

To check your AMI in two minutes:

1. Go to HUD's Income Limits lookup tool or use Fannie Mae's AMI tool.
2. Enter your state, county, and household size.
3. Compare the 80% AMI figure to your gross household income. If you're under it, you qualify for the widest range of programs. If you're between 80% and 120%, you still have options in many markets.

Don't assume you make too much. In cities like San Francisco, Boston, and Seattle, 80% of AMI can exceed $100,000 for a family of four.[4]

Do down payment assistance programs cost you anything?

Using a down payment assistance program could come with costs, depending on the program.

Application fees

Some programs charge an application fee, but this is relatively rare.

Higher mortgage rates

Using a down payment assistance program can result in a slightly higher mortgage rate. Since it’s not your money you’re putting down, the lender may assess your loan as riskier. But generally, this slight interest hike will be around 0.5% or less, according to our loan officers.

Closing costs

While some down payment assistance programs allow you to use the money to cover your closing costs, others are restricted to the down payment. That means you’ll be responsible for covering closing costs, which average 2-5%.[6] If you’re buying a $400,000 home, 5% is $20,000.

Down payment is just one piece. Check off the full list of everything you need to buy a house.

Common pitfalls to avoid

Your lender doesn't accept your DPA program

Some lenders aren’t used to working with down payment assistance programs, which can lead to delays. Others may refuse outright.

Josh Bradley, Executive Loan Officer at Best Interest Financial, says the delay usually comes down to which programs a lender has underwritten before. Bradley notes of coordinating assistance with a mortgage — but only if your lender is set up to handle it.

Lenders often have specific down payment assistance programs they prefer to work with, so talk to your lender to see if they can steer you to a program they like.

If you find a down payment assistance program that you love, shop around for a lender who’s willing to work with it and, ideally, has prior experience working with it.

The program delays closing 

Using DPA can slow your loan process because you're adding another party to the transaction.

You can apply to some programs directly through your lender, but others require a separate application and coordinate with your lender afterward. That adds paperwork and time.

Reese says the impact is usually modest. "DPA programs can add a week to the closing time," she says, but that's about it.

To minimize delays: apply to your program as early as possible, ideally before you have an accepted offer. If you're stacking funds from multiple DPA programs, add more buffer to your timeline.

You make too much to qualify

Down payment assistance programs generally have strict income limits around 80% of AMI, though in some areas the ceiling can be 100% or higher.

You're not a first-time buyer, and don't qualify

The Department of Housing and Urban Development (HUD) defines a first-time homebuyer as someone who has not:

• Owned a home in the past three years
• Your former home didn’t have a permanent foundation (a mobile home, for example)
• You are a single parent or displaced homemaker who only owned a home with a former spouse

Ready to get prequalified? Compare all your loan options in minutes. Fill out a quick form and we’ll connect you with one of our loan officers today.

You underestimate the paperwork

Kuclo says asset documentation is now a bigger hurdle than credit for most buyers.

"Saving up the right amount of money is very difficult," he says. "Avoid multiple crazy cash deposits into the account. Keep your documentation as simple as possible. There's going to be a lot of documentation around where your assets are coming from for the transaction."

Before you apply, gather: recent pay stubs, two years of tax returns, bank statements for all accounts, and documentation for any gift funds you plan to use.

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