The Ins and Outs of Down Payment Assistance Programs

Need Down Payment Assistance? Read This First

( – Owning a home has long been the American dream, but for many, it’s been just that—a dream. Mostly because so many believed they needed to save thousands for a down payment, and thousands more in closing costs. This myth is based on the old “rule” that they could not get a home loan without a 20% down payment.

The reality is quite different. Most prospective homebuyers can close on their new home with as little as a 3% down payment—so they only need to save for a year or so to realize the dream of home ownership. Down payment assistance (DPA) is available for thousands of home buyers, through programs run by both government and private organizations.

Types of Down Payment Assistance

There are four types of DPA.

  • Federal loans
  • Conventional loans
  • Grants
  • Community seconds

Federal Loans

These are mortgages that are backed by the government. That means that if a borrower defaults on the loan, the government takes it over, so the lender has minimal risk. The government does not make the loans, individual mortgage lenders offer specific programs.


Most first time buyers opt for an FHA loan, and here’s why.

  • Minimum 3.5% down payment
  • Credit scores as low as 620 for minimum down payment loan
  • Flexible debt-to-income ratios
  • Manufactured housing and multi-family units are acceptable


Veterans who are active, retired, or surviving spouses are eligible for 100% home financing through the Veterans Administration. Some vets may qualify for a program that eliminates closing costs and fees, so they can get into their homes with literally no money down.


Homebuyers in rural areas may qualify for a US Department of Agriculture loan. If country living appeals, borrowers can go online to find out which zip codes in their area is eligible for this financing. These are a few of the highlights of a USDA loan.

  • 100% financing
  • Flexible debt ratios
  • Credit score minimum  640
  • Super low interest rates for very low income borrowers
  • Renovations and rehab funds may be available

Conventional Loans

Private companies make conventional loans, and the guidelines for those loans are slightly different than for government loans. The biggest difference is that credit scores are typically higher, and debt ratios are lower. Conventional lenders do offer programs where the buyer only has to put down 3%, and in certain circumstances they can obtain grants, gift funds, or community second loans to make up the difference.


This is similar to an FHA loan, except that it’s designed for  low-to-moderate income borrowers in diverse communities. Borrower who want a HomeReady loan must complete an online buyer education course to be eligible for a loan. Other HomeReady benefits include:

  • Co-borrower does not need to reside in the home
  • Repeat home buyers may be eligible
  • Minimum down payment is 3%

Gifts and Grants

Most lenders who allow loans with DPA are flexible with the source of the assistance.


Community non-profits, religious organizations, and state and local housing agencies offer grants for DPA and closing costs. Ask your lender about grants in your area. The best thing about this money is that you don’t have to pay it back–it’s free.


Many first time buyers have parents or other family members who will simply give the buyer the money they need to close. As long as the gifts meets certain requirements, it’s allowable to cover the down payment or closing costs.

Community Seconds

Some agencies offer small second mortgages to cover closing and some down payment costs. These loans may be forgiven if the borrower meets certain conditions. Again, a buy should research options online or ask their loan officer.

Chenoa Funds

A little-know program for first time buyers is Chenoa Funds. This money is available as a second mortgage in every state except New York.

Final Thoughts

If you don’t think you can afford a home, explore all these options before you give up. Both government and private companies realize how important it is for all Americans to have access to home ownership. It really is easier than ever to become a homeowner.

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