Understanding Down Payment Assistance

Saving for a down payment is often cited as one of the biggest obstacles for first-time buyers. Down payment assistance programs exist to help address this challenge. This lesson introduces the general concept and common forms this assistance can take.

What down payment assistance generally is

The specific amount, eligibility rules, and application process vary enormously between programs, so this lesson focuses on general categories rather than specific figures.

Common forms of assistance

• Grants: funds that generally do not need to be repaid, provided certain conditions, such as occupying the home for a minimum period, are met.
• Forgivable loans: loans that are forgiven, meaning they do not need to be repaid, if the borrower meets certain conditions over time, such as remaining in the home for a set number of years.
• Deferred-payment loans: loans that do not require payments until a later event, such as selling the home, refinancing, or paying off the first mortgage.
• Low-interest loans: loans offered at reduced interest rates specifically for down payment purposes, repaid over time alongside the primary mortgage.
• Matched savings programs: programs where a buyer's own savings are matched with additional funds, often after completing a savings period or financial education course.

Conditions commonly attached

Where assistance programs come from

Down payment assistance can be offered by a range of sources, including state and local housing finance agencies, nonprofit organizations, and in some cases employers, each with its own eligibility rules and application process. A dedicated lesson later in this module covers state and local programs in more detail, and another covers employer assistance.

How to start researching

Because programs vary so much by location and change over time, a practical starting point is to search for down payment assistance programs specific to your state, county, or city, and to ask lenders and housing counselors, who are often familiar with locally available options, whether you might qualify for any current programs.

A common mistake

Down payment assistance can take many forms and comes with varying conditions, so researching specific programs available in your area, and understanding their requirements, is an important step for many first-time buyers.