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Down Payment Assistance Programs for First-Time Homebuyers

One of the biggest barriers to homeownership is coming up with a down payment, but several resources can help you cover this cost.

By Daria Uhlig

Written by

Daria Uhlig


Daria Uhlig is a contributor to Credible who covers mortgage and real estate. Her work has appeared in publications like The Motley Fool, USA Today, MSN Money, CNBC, and Yahoo! Finance.

Edited by Maddie Lloyd

Written by

Maddie Lloyd

Maddie is the Editorial Assistant at Credible. Her work has been featured on Zippia.

Updated March 21, 2024

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances.

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Homeownership is still the American dream, according to a report by the National Association of Realtors. But saving for a down payment poses a serious obstacle for many would-be homebuyers. It’s an especially difficult challenge for first-time buyers who don’t have profits from selling one home to help pay for a new one.

If you’re struggling to come up with a down payment on your first home, down payment assistance (DPA) programs can help. These programs consist of special loans, tax credits, and grants designed specifically to help first-time buyers purchase a home.

What is down payment assistance?

Down payment assistance is a loan, grant, or tax credit that provides you with the money needed for a down payment. Although VA- and USDA-backed mortgages don’t require down payments, most buyers must put down at least 3%, and you need a minimum of 20% down to avoid having to pay mortgage insurance.

Some assistance programs also allow you to use the money toward closing costs, which can total up to 2% to 5% of your loan amount.

How does down payment assistance work?

Down payment assistance programs provide homebuyers with resources to cover some or all of the down payment for a home purchase. They’re usually offered in the form of grants, loans, or tax credits.

These programs are typically funded by municipal, county, and state governments, but some lenders and not-for-profit organizations offer resources for down payment assistance as well.

Types of down payment assistance programs

Down payment assistance programs for qualifying first-time homebuyers come in several forms:

  • Grants: Grant money is yours to keep and doesn’t need to be repaid. You can also use the money from a grant to cover closing costs.
  • Forgivable loans: Forgivable loans are second mortgages with a 0% interest rate. You won’t have to repay the loan as long as you remain in the home for a set amount of time, typically five to 15 or 20 years. Keep in mind that if you move or refinance your mortgage before the forgiveness period ends, you’ll have to repay the loan.
  • Deferred-payment loans: These loans are another type of second mortgage. The loan amount will cover your down payment, and you won’t have to repay it until you sell or refinance your first home loan.
  • Low-interest loans: Some lenders allow you to borrow a second mortgage along with your first mortgage to cover down payment costs. Ideally, you’ll be able to lock in a loan with a rate lower than the national average.
  • First-time homebuyer tax credits: Also called mortgage tax credit certificates, homebuyer tax credits increase the tax benefits of homeownership and offset a portion of the amount you owe in mortgage interest. State housing finance agencies issue the certificates, which generally credit 20% to 40% of your total mortgage interest.

Several down payment assistance loans are second mortgages. This means you’ll need strong enough credit to qualify for both your mortgage loan and the down payment assistance loan that finances your down payment and/or closing costs. Aim to have a credit score of at least 640 to qualify for both your mortgage and down payment assistance loan.

Keep in mind: Even though these are typically “silent” loans, meaning you don’t have to make payments unless you sell the home or refinance the first mortgage, they do represent a lien on the property. That means they can leave you underwater if you have to sell for less than the combined balance of your primary mortgage and down payment assistance loan.

Grants also may have stipulations that require you to remain in the home for a period of time, such as three or five years. If you sell or refinance before that time, you’ll likely have to repay the funds.

Keep Reading: How Much of a Down Payment Do You Need to Buy a House?

Who qualifies for down payment assistance?

DPA programs are geared toward first-time buyers, but other buyers may qualify too. For example, public servants might be eligible for down payment assistance under the Teacher Next Door program. Eligibility has also been expanded to include individuals who work at any level of government. Check with your state housing department for additional programs.

Here are some other common eligibility criteria:

  • Low or moderate income or income below certain limits
  • Sufficient income and credit to qualify for mortgage loans
  • Purchased home used as primary residence
  • Homeownership counseling from a HUD-certified provider
  • Minimum residency requirements, typically three to 10 years

Who qualifies as a first-time homebuyer?

You might qualify as a first-time homebuyer even if you’ve owned a home before. That’s because the U.S. Department of Housing and Urban Development (HUD) defines that term loosely. Even if you’ve previously owned a home, you can qualify as a first-time homebuyer if you meet any of the following criteria:

  • You haven’t owned a primary residence in three years
  • You’re a single parent who’s only owned a home with a spouse
  • You’ve only owned a home that wasn’t in compliance with local or state building codes
  • You’ve only owned a mobile home that wasn’t affixed to a permanent foundation
  • You’re divorced and have previously owned a home with a spouse

If you’re considering an assistance program and have a special circumstance that might put you at a disadvantage when it comes to buying a home, ask program providers if you qualify — the answer might surprise you.

Other resources for minimizing homebuying costs

Down payment assistance programs aren’t the only way to make buying a home more affordable. Low or no down payment requirements also make it easier, as do programs that provide incentives for buying homes in revitalization areas.

FHA loans

FHA-insured loans require just 3.5% down, which makes them a popular option for first-time buyers. Mortgage insurance is required for all FHA loans. You’ll pay mortgage insurance for the life of the loan if you put down less than 10%, but with a down payment of 10% or more, mortgage insurance drops off after 11 years.

FHA loans have low closing costs, and they’re easier than conventional loans to qualify for.

Requirements for FHA loans include:

  • 3.5% down payment for borrowers with credit scores of 580 or higher
  • 10% down payment for borrowers with credit scores between 500 to 579
  • Mortgage insurance premium (MIP)
  • Debt-to-income (DTI) ratio no higher than 43%
  • The home must be your primary residence
  • Must provide proof of employment and income

USDA loans

Loans guaranteed by the USDA charge a guarantee fee, which is similar to mortgage insurance, but they let buyers with low or moderate income buy with no money down. The home must be your primary residence and be located in an eligible area.

The loans are termed “rural development” loans. However, eligible areas include many suburbs.

Requirements for USDA loans include:

  • Income cannot exceed 115% of median household income
  • The home must be your primary residence
  • Must be a U.S. citizen, U.S. non-citizen national, or Qualified Alien
  • The home must be located in an eligible rural area

VA loans

VA-guaranteed loans allow qualifying veterans and active-duty service members to purchase a home with no money down. Like USDA loans, VA loans charge a guarantee fee.

A Certificate of Eligibility (COE) is required when you apply. You can request one from the VA or have your lender pull it up.

Requirements for VA loans include:

  • Must meet minimum active-duty service requirements
  • Must be able to provide a COE
  • Must be the surviving spouse of a veteran

Fannie Mae and Freddie Mac

These corporations provide liquidity in the mortgage market by purchasing “conforming” loans — those that meet Fannie’s and Freddie’s requirements — from lenders. Termed “conventional” loans because they’re not backed by the government, they allow low-income individuals to purchase with as little as 3% down. However, you’ll pay mortgage insurance with a down payment of less than 20%.

Good Neighbor Next Door

HUD’s Good Neighbor Next Door program helps law enforcement officers, teachers (pre-kindergarten through 12th grade), firefighters, and emergency medical technicians buy homes in revitalization areas at a 50% discount. In return, you agree to live in the home as your principal residence for at least three years.

The homes are listed on the program website for seven days. If more than one qualified offer is submitted, the buyer is selected by lottery. Buyers must sign a silent second mortgage, but you won’t pay interest or principal as long as you remain in the home for three years.

If you’re considering a home purchase — whether you’re a first-time homebuyer or not — it’s important to shop around and compare multiple lenders. Credible makes this easy — you can compare loans with our partner lenders in minutes.

Learn More: How Much Does It Cost to Buy a Home?

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Meet the expert:
Daria Uhlig

Daria Uhlig is a contributor to Credible who covers mortgage and real estate. Her work has appeared in publications like The Motley Fool, USA Today, MSN Money, CNBC, and Yahoo! Finance.