Saving up for a down payment can be tough, especially in an era of high inflation and the $30 12-pack of soda. For the average American, saving enough money to put down on a home can take seven years or more.[1]
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.”
There are currently over 2,600 down payment assistance programs across local and national government agencies, lenders, and banks.[2] 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.
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.
We should also mention that many of these programs are reserved for first-time homebuyers, though just under 40% are accessible to repeat buyers. Most come with strict income limits that are around 80% of AMI.
Liz Reese, a mortgage expert at ReeseSquared Mortgage, 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.
Example: $35K city grant on a $350K home
- The city places a $35,000 lien on your home
- Sell before 5 years, and you must pay the grant back at closing
- Stay 5+ years, and the lien disappears and you owe nothing
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.
However, you typically won’t have to pay this loan back until you sell the home or refinance, and they don’t accumulate interest. So while it’s a conventional loan in many ways, your balance doesn’t grow over time, and it doesn’t come with a monthly payment.
Example: $52K deferred loan on a $350K home (15% down)
- The loan covers your entire down payment
- No monthly payments and no interest while you own the home
- When you sell, you pay back the $52K out of your closing proceeds
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.
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.
Let’s say you bought a $350,000 home and took out a low interest loan to cover your 15% down payment of $52,000.
| Name | Repayment? | Interest rate | Conditions |
|---|---|---|---|
| Grants | No (if conditions are met) | Zero | Must live in home for a certain period of time (usually 3-5 years). Typically reserved for first-time buyers. |
| Forgivable loans | No (if conditions are met) | Zero | Must live in home for a certain period of time (usually 3-5 years). Typically reserved for first-time buyers. |
| Deferred payment loans | Yes | Zero | Payment is usually deferred until you sell the home or refinance. Typically reserved for first-time buyers. |
| Matched savings programs | No | Zero | N/A |
| Low interest loans | Yes | Market rate (but lower than average) | Conventional loan terms |
How to find down payment assistance 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
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.
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%. If you’re buying a $400,000 home, 5% is $20,000.
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.
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 down payment assistance can complicate your loan process, since you’re bringing another lender into the equation.
Although you can apply to some programs through your lender, other programs require you to apply directly, which means they have to coordinate separately with your lender. This adds an additional layer of paperwork, and can extend your timeline.
How long or short this delay is will depend on many factors, such as how much experience your lender has with your specific program and whether you’ve already been approved for down payment assistance. Ideally, you’ll already be approved for down payment assistance by the time your offer is accepted.
If you’re using funds from multiple down payment assistance programs, this can further extend your closing timeline.
To minimize delays, apply to your program as early as possible and try to find a lender with experience working with down payment assistance.
Mortgage expert Liz Reese doesn’t think you should expect too much of a delay. “DPA programs can add a week to the closing time,” she says, but that’s it.
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
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FAQ
Do I have to be a first-time homebuyer to use a down payment assistance program?
Many down payment assistance programs require you to be a first-time buyer, but some do not. According to one authority on the subject, 38% of the over 2,600 down payment assistance programs are open to repeat buyers.
Will using a down payment assistance program hurt my credit score?
Although applying for a mortgage does involve a hard credit inquiry, which can have a small impact on your credit score, specifically using down payment assistance will not hurt your credit score.
Does down payment assistance work with conventional loans, FHA loans, VA loans, and USDA loans?
Yes, down payment assistance programs work with all of these loan types. Although VA and USDA loans require 0% down, you can use down payment assistance to cover closing costs.
Disclaimer: The information provided in this article is for informational and educational purposes only. It is not intended as legal, financial, investment, or tax advice, and should not be relied upon as such. Mortgage rates, terms, products, and eligibility requirements are subject to change without notice and vary based on individual circumstances, credit profile, property type, loan amount, and other factors. All loans are subject to credit approval. This content does not constitute a commitment to lend or an offer of specific loan terms. For personalized mortgage advice and to discuss loan products that may be suitable for your situation, please contact one of our licensed loan officers.