2023 Down Payment Assistance Guide

Let’s face it, buying a home can be capital intensive. Considering the median sales price for a home sold in the U.S. hit $408,100 in 4Q2021, it's no wonder that 11% of all home buyers cite saving for a down payment to be the hardest hurdle to overcome in the home buying process.1, 2

But while your options may appear bleak, the silver lining is that there are indeed options available for eligible borrowers that can help combat the difficulties of saving for a down payment and becoming a new homeowner. 

In fact, there are over 2,500 down payment assistance programs across the country that help make it easier for buyers just like you to purchase a home.3 

ReviewMyMortgage.com knows that there are a number of things that go into buying a home, with the down payment being just one of them. That’s why we compare programs at the state level, getting you specific information about real programs in your area that will empower you to buy your dream house.

How Does Down Payment Assistance Work?

Unless you're related to a dragon or leprechaun with a hoard of gold stashed away somewhere, chances are you are like one of the other 87% of homebuyers who need to finance their home purchase. 

Most lenders will require you to contribute some amount of money toward the purchase price of your new home, also known as your down payment. This amount can vary depending on the loan program you choose and the sales price. 

Some mortgage programs do allow you to put no money down, but those programs are few and far between. Furthermore, you also must meet specific eligibility criteria in order to qualify. 

Down payment assistance (DPA) are programs specifically designed to aid qualifying borrowers who might not have enough saved for their down but, all else considered, can get approved for a new mortgage loan. The way the assistance is structured depends on the specific program you utilize. 

Forgivable vs. Repayable vs. Deferred 

There are a variety of down payment assistance programs to take advantage of all of which are structured in unique ways. It's important to distinguish between those that are forgivable and those that are repayable programs.

Forgivable down payment assistance refers to some or even all the original down payment assistance provided not needing to be paid back. In many instances there may be a seasoning period over which the assistance becomes forgivable, such as a pre-defined number of months or years. There could be other restrictions including occupancy which if followed may trigger the repayment of funds. 

Repayable down payment assistance is a little different than forgivable programs. While they can help fund your down payment now, they need to be paid back over time or on a future date. These programs are designed to help you buy a home now rather than later. 

One type of repayable program may allow you to postpone or defer your repayment of the down payment assistance funds to a future date or until a qualifying event occurs. This might include you selling the home, renting the space, or relocating to another area. 

What Can Down Payment Assistance Be Used For?

The phrase ‘down payment assistance’ is a little bit of a misnomer that can be a little confusing for new borrowers looking to buy a home. 

While many DPA providers have their own requirements for what down payment assistance funds can be used for, most permit their use for both down payment and closing costs. 

Common closing costs that may be eligible to be covered using DPA funds include: 

• Title work and insurance
• Appraisal inspection fees
• Recording and processing costs
• Homebuyers education and counseling

Types of Down Payment Assistance Programs

There are many different down payment assistance programs available to homebuyers. Most are offered at the state or county level, although some options might also be available through your local municipality. 

Nonprofit organizations also offer a lot of support to first-time homebuyers and may have funds earmarked for down payment assistance on a first come-first serve basis. 

In general, first-time homebuyers are defined as someone who has not owned real estate in the last three years. This means if you have been a homeowner in the past but have taken at least a three-year hiatus, you could potentially qualify for down payment assistance.

Community and Affordable Seconds

Aggregators Fannie Mae and Freddie Mac both accept versions of down payment assistance referred to as a community or affordable second. These programs are secondary financing sources which take a subordinate lien behind the mortgage you are using to buy your home.

The subordinate lien can be repayable, deferred, or forgivable, depending on the it's set up by the originating institution. Some could also have an interest rate while others might be interest-free loans. It completely depends on the program you are using.

While Fannie Mae and Freddie Mac do not purchase this type of subordinate financing, they set parameters for how borrowers can use them in conjunction with their primary mortgage application.

For example, the programs are geared toward low-to-moderate income borrowers. Also, the community or affordable second must be provided by an approved agency with a documented and on-going history of providing financial assistance to borrowers. 

Second Mortgage and Portfolio Programs

Outside of approved community and affordable second providers, there are other down payment assistance programs proprietary to specific institutions. Many require you to use a specific mortgage program or product, while others may not. 

Regardless of which program you choose, make sure you read the fine print before applying. If you have any questions, ReviewMyMortgage.com can get you in contact with a premier lender who can explain your DPA options and offer insightful recommendations to make your home buying process much more efficient. 

Grant Programs

Grants are awarded funds that do not have to be repaid. However, some programs claim to be grants but have some caveats in the fine print that could trigger repayment. It's important to note that lenders do consider gifts and grants differently. If you are going to use either option, make sure to discuss it with your lender.

Applying for Down Payment Assistance

If you decide to use down payment assistance as part of your home buying process, it's especially important to make sure all vested parties (realtors, loan officer, agency representative, etc.) are looped in and on the same page. 

Most DPA programs will require you to choose a mortgage program and apply for submitting your down payment assistance application. This will help determine your eligibility for any assistance. 

Once you are quite sure you will qualify for your new mortgage, you then must apply to specific programs individually. You will also need to determine how much assistance you can receive and how much you want to use. It's important you review the terms for repayment, if any, as part of your home purchase plan. 

Pros and Cons to Using Down Payment Assistance Funds

There are many benefits to using down payment assistance, but don’t just leap in without fully reviewing all the stipulations. It isn’t always free money. There can be some downsides to using down payment assistance that you will want to consider.

Overall, down payment assistance can make it easier for you to afford a new home by helping you overcome one of the biggest hurdles in becoming a homeowner: the down payment. 

Similarly, since down payment assistance works intimately with your lender, it may open up certain home loan programs you may not have considered. In fact, you might even be eligible for a lower interest rate by putting more money down regardless of if you use down payment assistance in combination with your own personal funds.

A few downsides to using down payment assistance can be a bit restrictive with how you use your home. For example, many programs require you to live in the home as your primary residence. If you relocate or sell, it could trigger a repayment event. 

Lastly, down payment assistance is not for everyone. Some programs have limited availability of funds. Furthermore, there can be strict qualifying criteria and if you do qualify, it adds an additional hoop jump through as part of the entire home buying process. 

Sources

1. St. Louis Federal Reserve. (2022, January 26). Median Sales Price of Houses Sold for the United States. ALFRED. Retrieved January 31, 2022, from 
2. National Association of Realtors Research Group. (2021, March). 2021 Home Buyers and Sellers Generational Trends Report. National Association of Realtors. 
3. Campisi, N. (2021, July 20). Housing Down Payment Assistance Programs By State. Forbes Advisor. Retrieved January 31, 2022, from