Down payment assistance, affordable first mortgages and mortgage credit certificates

3 common types of down payment assistance programs explained

By Tracey Shell

October 2019

From loans and grants to tax credits and affordable first mortgages, down payment and homeownership programs can help you with down payment and closing costs so you can get into a home sooner than you may have thought possible.

But with more than 2,500 programs available across the country, it can be overwhelming to understand the nuances of the different program types. Let's take a look at how the 3 most common types of programs work.

1. Down payment assistance programs

The largest category of programs – 72% to be exact – are down payment assistance and closing cost programs. Down payment assistance (DPA) is an umbrella term for programs offered by federal, state, county or local government agencies, nonprofits and employers. DPA programs come in 2 primary forms:

  • Grants which do not have to be paid back
  • Second mortgage loans with varying payback or loan forgiveness provisions

Down payment assistance grants

Grants are gifts at closing provided by an eligible third party to help cover the cost of some or all of your down payment or closing costs. They do not have to be repaid by the homebuyer, do not incur a lien on the property being purchased, and have no associated note or deed.

Example: the PenFed Foundation Dream Makers Grant. (Editor's note: Since the publication of this story, the Dream Makers program has permanently closed.)

Second mortgage programs

Many down payment programs come in the form of a second mortgage, or subordinate lien, with varying payback provisions.

Repayable DPA programs provide down payment funds at closing often as a 0%-interest second loan, but some may accrue interest and some may be amortizing loans. These programs typically range from 5-year to 30-year loans with varying repayment terms, which may start immediately or kick in after a predetermined period.
Example: the NeighborWorks Blackhawk Region Down-Payment Assistance Program in Beloit, WI.
Deferred or silent second programs postpone repayment of the down payment assistance until the borrower sells, refinances, rents or moves out of the home. Buyers who plan to live in the home for several years will benefit most from the home's appreciation in value.
Example: the City of Napa's First Time Homebuyer Programs.
Forgivable second mortgage programs forgive some or all of the DPA amount. When and how much of that down payment help is forgiven may vary, but it's common for a percentage of the loan to be forgiven each year for a predefined number of years. However, if the program's conditions are not met – for example, the buyer moves out of the home – the loan must be repaid, sometimes with interest.
Example: the City of Austin "Standard" Down Payment Assistance Program.

2. Affordable first mortgages

Many larger housing finance agencies, particularly at the state level, offer first mortgages to accompany their down payment assistance programs. They are often funded by state housing finance agencies and may subsidize portions of the interest to offer rates below what the normal market can provide, helping lower your buying costs and monthly payments. They may also have reduced closing costs and fees and waive mortgage insurance requirements.

Example: the Washington State Housing Finance Commission's House Key Opportunity Program.

The USDA also has 2 first mortgage programs, the Rural Direct Loan and the Rural Guaranteed Loan, both primarily used to help low- and moderate-income individuals or households purchase homes in rural areas. Funds can be used to acquire, build (including purchase and prepare sites and provide water and sewage facilities), repair, renovate or relocate a home.

3. Mortgage Credit Certificates (MCC)

This annual federal income tax credit is designed to help first-time homebuyers offset a portion of their mortgage interest on a new mortgage as a way to help qualify for a loan. As a tax credit, not a tax deduction, the MCC helps reduce your annual taxes dollar for dollar.

The mortgage credit allowed varies depending on the state or local government that issues the certificates, but is capped at a maximum of $2,000 per year by the IRS. MCCs can often be used alongside another down payment program.

Program providers

Homebuyer programs are managed and funded from an array of sources, each with its own requirements, nuances and limitations. The role of program administrators can vary, but generally, they approve participating lenders who are trained on the program guidelines and approved to originate, process and close specific programs.

You can work with a participating lender to apply and access down payment help or you can directly contact the agency offering the program.

Find down payment help

To see what's available in your market, search for programs on Talk to your mortgage lender and real estate agent about the opportunities in your area. Contact your state and local housing finance agency for more information about homebuyer education, homebuyer counseling and specific programs.

Debra Plaisted

I am a disabled widow. I would like to find a down payment resource to purchase a home/cindo in Florida. I have been renting for the last 10 years. Please let me know if available.

Liz Keuler - Readynest editor

Debra, you can look up down payment assistance programs in your area here: Your next step would be to contact a lender to discuss your options. Best of luck!

Dorothy Haywood

I help with my down payment I have chosen the house all the paper in order I just need the down payment please help

Liz Keuler - Readynest editor

Dorothy, if you're already working with a lender to buy a house, you should ask your loan officer what down payment assistance programs they support. You can also look up down payment assistance programs in your area here:

Mary Ellen Sweeney

Thank you for this excellent reference to help my clients (and my own family,) as we are all in the same boat. We really mean it when we say, "Our Goals are Your Goals."


It was great information to know when it’s time to buy a house.

Sonia stenvall Stenvall

Very good.

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Tracey Shell is VP of Marketing Communications for Down Payment Resource and editor of its homebuyer blog. Down Payment Resource is the nation’s leader in providing homebuyers and professionals with information on down payment assistance programs.
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