Down Payment Resource has a free search tool that enables homebuyers to find programs they may qualify for in their area. There are currently over 2,000 homebuyer assistance programs available across the country, and these programs break down into 3 primary types:
Down payment assistance programs and grants: 73% of homebuyer assistance programs are geared toward helping homebuyers make a down payment on a home purchase. Since the biggest barrier to homeownership is often the large lump sum of cash required for the down payment, it makes sense why the bulk of the homebuyer assistance programs cater to helping homebuyers offset this expense.
Down payment assistance programs can be offered by the city, county or state where you live and come in two primary forms: as a grant which does not have to be repaid or as a second mortgage loan typically forgivable over a designated period of time.
Affordable first mortgages: Many state Housing Finance Agencies offer first mortgages at below-market interest rates to help homebuyers lower their monthly payments and the overall costs associated with buying a home (like closing costs, for example). These programs are usually available statewide, as well as in targeted areas where agencies focus on community revitalization efforts and helping low-to-moderate income (LMI) buyers achieve homeownership.
Mortgage Credit Certificates: These are annual tax credits for first-time buyers that reduce tax liability dollar for dollar. Mortgage credit certificates are capped at $2,000 annually by the IRS, but there are other tax credits available for first-time buyers, such as the First Time Homebuyer Tax Credit that was introduced by the Biden Administration in 2021 and tax credits for homebuyers who purchase and renovate historic homes.
Additionally, many homebuyer program providers use a combination of the solutions mentioned above to create a total assistance package for borrowers.
A note about forgivable down payment assistance
Regardless of a program’s eligibility requirements, when it comes to down payment assistance, there is one big thing prospective buyers should note: whether or not the program requires repayment or if the assistance is forgivable. Below is a quick primer on terminology.
- Grants – money that never has to be repaid
- Second mortgages – often given at 0% interest, these are repaid monthly alongside your first mortgage
- Deferred loans – second mortgages with deferred payments that are only repaid upon sale or refinance of the home
- Forgivable loans – second mortgages forgiven over a set number of years that only need to be repaid if you move or refinance before the loan is forgiven in full
There are many different types of forgivable assistance, but the most important item to note is that funds do not need to be repaid unless the program’s terms are violated. Common repayment triggers include moving out of the home before the loan forgiveness period is up or refinancing out of a specific mortgage loan tied to the down payment assistance.
