Finding Down Payment Assistance Programs

By Brian O'Connell · July 05, 2023 · 7 minute read

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Finding Down Payment Assistance Programs

Buying a home is exciting, but coughing up the down payment can be a downer. That’s where down payment assistance enters the picture. Government and nonprofit programs help unlock the door to homeownership for qualified buyers.

Of those who financed their home purchase, the average down payment was 7% for first-time buyers and 17% for repeat buyers, according to the National Association of Realtors®.

It makes sense to put down as much as you can comfortably afford on a down payment. The more you put down, the less you’ll be borrowing, which translates to lower monthly payments and less interest paid over the life of the loan.

Down Payment Defined

Depending on their financial situation, homebuyers may qualify for down payment assistance from the government or a private entity.

Down payment assistance programs come in several forms. Some offer homebuyers loans and grants that can be applied directly to down payments and, in some cases, help with closing costs, too.

The down payment — which covers the upfront “out of pocket” cost of getting a mortgage — is usually made at the mortgage closing and can be paid with a check, cashier’s check, or electronic payment.

The down payment covers a reasonable percentage of the total home purchase price, with the mortgage covering the remainder. Lenders typically won’t approve a mortgage loan unless the borrower pays upfront cash — anywhere from 3.5% to 20% in most cases — against the total price of the property.

💡 Quick Tip: Thinking of using a mortgage broker? That person will try to help you save money by finding the best loan offers you are eligible for. But if you deal directly with an online mortgage lender, you won’t have to pay a mortgage broker’s commission, which is usually based on the mortgage amount.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Homebuyer Assistance Programs and Qualifications

If a first-time homebuyer can’t afford a down payment, that opens the possibility of financial assistance.

The programs that tend to provide the most financial assistance to homebuyers — state and federal governments and local, regional, and national nonprofits — will likely need an applicant to clear hurdles in order to qualify for down payment help.

These criteria usually lead that list:

•   The three-year rule. The buyer must not have owned a home in the past three years. In most scenarios, government agencies and private charities deem anyone who hasn’t owned a home in the previous three years, even a repeat buyer, a “first-time home buyer.”

•   Must be for a primary home. Homebuyers should be clear if the money is going to the purchase of a primary residence. If the home is an investment property designed to draw rent, financial assistance providers usually won’t issue a green light on funding.

•   Income limits. First-time homebuyers may have to meet income limits. The buyer may also have to keep the home price below a specified limit.

•   Funding caveats. Depending on the funder, the first-time homebuyer may have to take a homebuyer education course and may be asked to contribute some money to the down payment.

New homebuyers looking for financial help — and who qualify for that help — can get financial aid from a variety of sources, both public and private.

The help can be substantial.

According to a report from the Urban Institute, up to 51% of potential homebuyers residing in the report’s U.S. metropolitan areas studied would qualify for some form of home down payment assistance. Upon applying, those homebuyers would be in line to receive between $2,000 and $39,000.

That’s one reason actively looking for down payment assistance may be so important. When that search begins, the following funding sources may be a good place for homebuyers to start.

💡 Recommended: First Time Homebuyer Guide for 2023

HUD, the Gatekeeper

A good source for state and nonprofit home down payment assistance is the Department of Housing and Urban Development, or HUD.

HUD is a federal gatekeeper, steering homebuyers to various state and nonprofit programs and offering home buying and down payment advice from HUD home assistance counselors.

Each state may have different rules and requirements, so it’s a good idea to talk to either the state agency directly or to a qualified advisor through the HUD housing counselor portal.

Federal, State, and Local Government Grants

Government grants might be the optimal form of down payment assistance, as it’s free money. Grants usually come from federal, state, or local governments and nonprofit groups.

Each government agency or charitable group has its own rules for down payment assistance grants, but in general, you have to pass an eligibility test (the common criteria are listed above) to qualify.

Again, HUD does not offer direct grants to individuals but works through local governments and nonprofit organizations to make financial assistance and counseling available.

💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

Federal Government Loans

While technically not deemed direct down payment assistance, U.S. government-insured housing loans consist of low-interest loans to new homebuyers that enable them to make lower down payments, thus making it easier to afford both a home loan and a down payment.

Federal home loans usually come from three agencies:

The Federal Housing Administration. The FHA provides loans from private lenders to qualified homebuyers. The primary qualifier is a FICO® credit score of 580 or above. A borrower with a credit score of 500 to 579 who brings a 10% down payment to the table may also qualify for an FHA loan.

U.S. Department of Agriculture. The USDA offers direct home-buying assistance to rural homebuyers. Loans enable qualified homebuyers to purchase a home with no down payment. The home must be in a qualified rural area, and borrowers’ adjusted annual income cannot exceed 115% of the median income in the area, among other criteria.

There is no minimum credit requirement for a USDA loan, but applicants with a credit score below 640 are subject to more stringent guidelines to qualify.

Department of Veterans Affairs. The VA provides home purchasing assistance to current members of the armed forces, military veterans, and eligible spouses of deceased U.S. military members. Similar to a USDA home loan, a VA loan requires no down payment.

Applicants must meet the VA’s — and the lender’s — standards for credit and income, and be purchasing a primary home.

Forgivable Loans

These loans come from lenders, usually in two forms: deferred payments and forgivable loans.

Forgivable loans are basically second mortgages that borrowers don’t have to repay if they remain in the primary home for a specific time period (for example, 10 years).

Forgivable loans usually have a 0% interest rate, making it easier to afford a home down payment.

State Down Payment Assistance

Assistance programs vary by state. Still, some commonalities exist — especially the urgency to help economically struggling homebuyers afford a home down payment.

These states are examples of that:

Arizona. By and large, homebuyers in most Arizona counties can apply for home down payment assistance through the state’s Department of Housing Home Plus Program.

Homebuyers will need a FICO® credit score of 640 or higher and an annual income of $126,351 or less. Additionally, the purchase price of the home can’t be higher than $371,936.

Florida. The Sunshine State offers home down payment assistance programs via Florida Housing Finance Corp.

•   HFA Preferred and HFA Advantage PLUS Second Mortgage. These down payment and closing cost programs offer 3%, 4%, or 5% of the total loan amount in a forgivable five-year second mortgage.

•   Florida Assist. Eligible homebuyers receive up to $10,000 through an interest-free second mortgage. The money doesn’t have to be paid back unless the homeowner sells or refinances the property.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

Government and nonprofit funding are the primary vehicles for down payment assistance, but homebuyers may also seek down payment help from family and friends, retirement and investment funds, or even microlenders.

However a buyer approaches home down payment assistance, the keys are planning, research on available programs, and a disciplined approach to budgeting.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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