A Guide to Down Payment Assistance Programs and Grants

Down Payment Assistance Can Make Homebuying Affordable

One of the biggest challenges of buying a home can be coming up with the down payment. Learn about down payment assistance programs and grants that could help you become a homeowner sooner.

What Is Down Payment Assistance?

A down payment is the initial lump sum of money paid by the buyer to the seller toward the purchase of a home. The down payment, which is a percentage of the purchase price, is separate from closing costs. The remaining cost of the home is typically financed through lenders such as Freedom Mortgage.

Down payment assistance—also referred to as DPA—is financial help offered to eligible homebuyers through DPA programs that aim to lower the upfront costs of purchasing a home. These programs often offer support through grants or loans (or a combination of both) and can come from government agencies, nonprofit organizations, banks, employers, and, in some cases, mortgage lenders. Please note, Freedom Mortgage does not offer down payment assistance programs.

How Does Down Payment Assistance Work?

Down payment assistance can take several forms, including grants, loans, and matching programs. Your eligibility is based on factors like your income, credit score, credit history, and other information from your application.

Common Types of Down Payment Assistance

With more than 2,000 down payment assistance programs and grants available, you have multiple options to explore if you need support. Here’s a look at some of the most common types of down payment assistance:

1. Grants: A grant is money given to eligible homebuyers who need upfront help without future loan obligations. Grants usually don’t require repayment, but you may need to stay in the home for a particular number of years.
2. Forgivable loans: Loans that don’t require full repayment, and that sometimes require no repayment, unless you sell your home or move out before a particular date are called forgivable loans.
3. Deferred payment loans: These are loans that don’t require immediate payment—potentially until you sell, refinance, or move—allowing you to repay at a later date.
4. Low- or no-interest loans: These loans serve as a second mortgage with below-market rates that can help borrowers who are able to take on an additional monthly payment.
5. Matched savings programs: Also known as Individual Development Accounts (IDAs), these are programs that match your savings at a particular rate, such as 2:1 where you’d save $1,000 and get $2,000 to match.

Down Payment Assistance Qualifications

Common requirements to qualify for down payment assistance include having:

• A certain income range
• A certain credit score or credit score range
• A certain debt-to-income ratio (DTI)

Ranges for each financial requirement will vary depending on the particular assistance program. Other common, but not always mandatory, requirements for down payment assistance include:

• Attending a specific class on homebuying or finances
• Agreeing to a specific mortgage type or term
• Being a first-time homebuyer
• Not owning rental or investment properties
• Purchasing a home in a specific area or county
• Residency in the home for a designated amount of time
• Purchasing a home to be your primary residence

Keep in mind that if you don’t meet the terms and conditions of the down payment assistance you’re approved for, you could lose the loan or grant with immediate repayment required.

How To Apply for Down Payment Assistance

If you’re interested in down payment assistance, here’s what the application process looks like:

Step 1: Research Options

Research what down payment assistance programs are available to you by looking for local, state, and nationwide providers, including government agencies, nonprofit organizations, and lenders.

Step 2: Determine Eligibility

Review qualification requirements of the down payment assistance grant or loan to determine whether you should apply. If you’re unsure, contact the provider for support.

Step 3: Gather Your Documentation

Collect copies of your pay stubs, tax returns, W-2s, credit report, bank statements, home purchase agreement (if applicable), homebuyers education course certificate (if applicable), and any other required documentation.

Step 4: Submit Your Application

Apply for the grant or loan application by following the instructions from your assistance provider. To avoid unnecessary delays, be sure to follow up with your provider and stay on top of any notifications.

From here, you should be notified that your application has been processed and is under review. Providers should reach out to you in the next few weeks with their determination.

What Are the Benefits of Down Payment Assistance?

Down payment assistance has many benefits for qualified buyers, including:

• Increased home affordability and homeownership accessibility
• A reduction in the upfront cost of buying a home
• Potentially lower monthly mortgage payments

If you don’t qualify for down payment assistance but are interested in exploring your financing options, a loan advisor at Freedom Mortgage can help you find the right home loan that fits your budget.

Get Started With Freedom Mortgage

Down payment assistance programs may be able to help you kickstart your homeownership dreams. Explore your options and learn more about our FHA, USDA, and VA loans, which come with flexible financial requirements and favorable terms. See if you prequalify and talk with one of our loan advisors today.