Mortgage Down Payment Assistance: An Overview


If you are planning on buying a house in the near future, you will probably be asked to put a sizeable down payment towards the sale price of the home. The down payment will be subtracted from the price of the home, and the lender will cover the rest of the cost, assuming your mortgage application is approved.

Unfortunately, a down payment can also be incredibly expensive. A lot of people may not be able to afford to put down the recommended 20 percent. That is where a down payment assistance program can be helpful. This is funding that is given to homebuyers through local, state, or federal programs. How does down payment assistance work? The goal is to give new extra money that can help you cover the cost of your down payment, allowing you to purchase your home.

How Much Is the Recommended Down Payment?

A lot of traditional lenders will require home buyers to put 20 percent down. If you are purchasing a house worth $200,000, your down payment would be $40,000. Clearly, this can be very expensive, but not all home buyers will be asked to put down 20 percent. If you are a first-time homebuyer, you might be able to apply for an FHA loan that only requires you to put 3.5 percent down. Sadly, even this amount of money can be difficult for the average home buyer to overcome. Why exactly is a down payment required? 

Why Is a Down Payment Required?

A down payment is required because it reduces the risk the lender has to take on. The lender is taking a risk by giving you a home loan. If you cannot afford to pay back the mortgage, the lender will have to sell the house, and he or she may not get his or her money back. By putting money down, there is a greater chance that you can pay back the loan when you sell the house. Furthermore, in exchange for reducing the risk of the lender, the lender may give you a lower interest rate on your loan, helping you save money. 

How Does Down Payment Assistance Work?

There are numerous programs available that can help you cover the cost of your down payment. There might be a local program, favorable loans for down payments, and grants that can help you purchase your home.

Many of these programs have eligibility requirements. For example, you may need to go through a mortgage training process, or you may need to take classes on basic finance. Some programs will offer you assistance based on the percentage of the sale price of your house. Other programs have a limit to the amount of money you can receive. You should review the criteria of each individual program to figure out which one is best for you. 

The Different Types of Down Payment Assistance

If you are looking for down payment assistance, you have plenty of options from which to choose. Some options you may want to consider include:

  • Grants: This is one of the top forms of down payment assistance because you don’t necessarily need to pay it back. If someone is giving you a grant, you can put it towards your down payment without having to pay it back in the future. Essentially, this is a gift.
  • Forgivable Mortgage Loans: These are loans that you do not have to pay back as long as you meet a number of conditions. For example, if you stay in the home for at least ten years, you may not have to pay back the loan. Take a look at the conditions so you know exactly what you have to do to prevent owing the lender any money.
  • Deferred Payment Loans: This is another type of down payment assistance. Essentially, this is a loan that you have to pay back, but you do not necessarily have to pay it back for a certain number of years. Or, you may not have to pay back a loan until you sell the house.
  • Loans With a Low Interest Rate: This is a beneficial down payment assistance program because you are essentially being given another loan with a very low interest rate. Even though you have to pay back this money, it can make it easier for you to afford a down payment on a home.
  • Matched Savings Programs: You should also see if there are matched savings programs in your local area. The bank will create an account that will fund your down payment. For every dollar you put in the account, the bank will match it up to a certain amount. For example, if you put $5,000 in the account, the bank will match this, giving you a total of $10,000.

If you are looking for ways to make your house more affordable, you should take advantage of these assistance programs. They could make it easier for you to afford a house for yourself and your family.

Specific Programs for Down Payment Assistance

There are plenty of programs you should consider if you are looking for help with a down payment. They include:

  • The Chenoa Fund: This program is available in every state except New York. The program will provide down payment assistance of up to 3.5 percent. This is particularly helpful if you are a first-time homebuyer. Some first-time homebuyers are eligible for a specific loan from the FHA that only requires 3.5 percent down. There are specific qualifications you must meet to be eligible for this program, so make sure you understand the conditions.
  • Community Seconds: You might also be interested in Community Seconds. This is a program that allows you to receive funds from nonprofit organizations, local governments, and state governments. The money can be used to put a down payment on a house.
  • Federal Loan Programs: You should also check out federal programs such as FHA loans, VA loans, and USDA loans. You might qualify for a loan that requires 3.5 percent down. You might even be eligible for a 0 percent down loan if you are eligible for loans from the USDA and VA.

Consider checking out these programs if you are looking for help with your down payment. You don’t necessarily need to put 20 percent down to qualify for down payment assistance. 

What Factors Determine if I Quality for Down Payment Assistance?

There are a number of factors that will dictate whether you qualify for down payment assistance. The location of your home, whether you have owned a home before, and your income will all dictate whether you qualify for down payment assistance. If you qualify for one of these programs, you may need to stay in your home for a certain number of years to avoid paying back the money. You might also be asked to take classes or go through mortgage training before you are given funding. If you are interested in learning more about down payment assistance programs, you may want to reach out to a financial professional for help. Even though it can be a challenge to afford a home, there are plenty of resources available. Make sure you explore the benefits and drawbacks of each option before you make a decision.