Path to Homeownership: Down Payment Assistance and Other Key Resources

Owning a home is a vital part of the American dream. Yet, the challenge of saving for a down payment remains a significant barrier for many. High living expenses, student loan debt and fluctuating job markets are just a few hurdles preventing potential buyers from setting aside enough funds to purchase a home.

For those struggling to save for a down payment, there are several options worth exploring, such as low down payment mortgages and mortgage assistance programs backed by state and federal agencies. MoneyGeek’s guide can be a helpful starting point for individuals looking to purchase a home.

Down payment assistance refers to programs that help homebuyers cover the initial costs of purchasing a home. These programs are typically offered by government agencies, nonprofits and other organizations committed to helping individuals become homeowners.

These programs work by providing funds that can be used toward a down payment or closing costs. For example, if you were buying a home priced at $250,000 and your lender required you to put 20% down, your down payment would be $50,000. But with down payment assistance, you would only need to provide a much smaller portion of that amount upfront.

Most down payment assistance programs set income eligibility requirements that apply whether you are an individual borrower or your household includes others. The specific eligibility requirements can vary widely depending on the program, reflecting differences in target demographics and objectives.

Additionally, eligibility for down payment assistance often includes being a first-time buyer. According to the U.S. Department of Housing and Urban Development (HUD), a first-time homebuyer is someone who fits any of the following criteria:

• You have not owned a principal residence in three years.
• You are a single parent who has only owned a home with your former spouse while married.
• You are a displaced homemaker who only has a primary residence with your spouse.
• Your former home was not affixed to a permanent foundation in accordance with applicable regulations.
• You have only owned a property that was not in compliance with state, local or model building codes and cannot be brought into compliance for less than the cost of constructing a permanent structure.

Note that certain programs may also have requirements related to the purchase price of the home.

Down payment assistance comes in various forms to help potential homeowners manage the upfront costs of buying a home. These include first-time homebuyer programs, grants and loans offered through state and local governments. Assistance may also be provided by the private sector and local nonprofits.

Grants are a type of down payment assistance that do not require repayment. They are typically offered by HUD, employers, community organizations, state and local housing finance agencies (HFAs) and state and local governments.

Deferred payment loans function as second mortgages and offer down payment assistance to homebuyers. They typically do not accrue interest and require no monthly upfront payments. Repayment of the loan is generally deferred until the homeowner sells, moves or refinances their first loan. It's important to remember that deferred payment loans are not forgiven and must be paid back once any of these triggering events occur.

Low-interest loans are also second mortgages. They offer reduced interest rates compared to standard market rates, making them more affordable over time. Unlike deferred-payment loans, low-interest loans require regular monthly payments, which you’ll have to start paying immediately, along with your monthly payments on your first mortgage.

Forgivable loans, another type of second mortgage, come with a 0% interest rate. They may be forgiven, meaning the homeowner does not have to repay them under certain conditions. Typically, the condition is that the homeowner must remain in the home for a predetermined period, such as five to ten years. If the homeowner moves, sells or refinances their mortgage before this period expires, they must repay the remaining portion owed.

Individual development accounts (IDAs), or matched savings accounts, are a form of down payment assistance designed to help individuals save towards purchasing a home. In these programs, every dollar the participant saves is matched by a certain ratio by a sponsoring organization, which can be a nonprofit or a government agency. To participate in an IDA program, you usually need to meet specific income and employment requirements and commit to financial education courses.

Down payment assistance programs are often particular to local areas, with many designed to cater to specific cities or states' unique economic and housing conditions. However, several programs also offer down payment help on a nationwide scale.

Chenoa Fund is a nationwide down payment assistance program offered by the CBC Mortgage Agency. It helps eligible homebuyers by offering either 3.5% or 5% of the down payment needed to purchase a home using an FHA loan.

Applicants must meet minimum credit score and income qualifications to join the Chenoa Fund program. Additionally, they are required to attend a homebuyer education course tailored to the Chenoa Fund down payment assistance program.

The HomeReady mortgage, offered by Fannie Mae, is a nationwide program designed to assist low-income borrowers, first-time homebuyers and repeat homebuyers. It requires a low down payment of 3%, offers borrowers lower PMI rates and features flexible funding options, including the ability to use gifts and grants for down payments.

Applicants interested in the HomeReady mortgage must have a credit score of at least 620 and meet the income limit of 80% of the area median income (AMI) for the property’s location, including those in low-income census tracts.

Like HomeReady, Home Possible mortgage is a nationwide down payment assistance program offered by Freddie Mac. It is tailored to assist very low- to low-income borrowers with affordable and sustainable homeownership. The program allows for a very low down payment, with options starting as low as 3% of the home's purchase price and offers borrowers reduced PMI rates. Additionally, it provides flexibility in funding, including the use of money from family or employer-assisted housing benefits for down payments and closing costs.

To be eligible for the Home Possible mortgage, the income of applicants must not exceed 80% of the AMI for the location where they intend to buy a home, although this limit may vary slightly based on local housing agency guidelines.

Habitat for Humanity is a global nonprofit organization that also functions as a down payment assistance program across the United States. It offers low-income families the unique opportunity to own a home through collaborative construction and affordable mortgage financing.

To qualify for homeownership, families must contribute hours toward participation in the construction of their own or someone else's home. All Habitats across the country follow strict guidelines set by HUD, with minimum and maximum amounts based on the applicant's family size.

More than 2,000 programs across the country are designed to help individuals and families achieve the American dream of owning a home. We highlighted key programs in the 10 most populous states below.

While many down payment assistance programs focus on high-cost metro areas, loan programs are also available for borrowers in rural areas, primarily in the form of USDA loans. USDA loans are offered by the U.S. Department of Agriculture and designed to assist residents in rural areas in purchasing homes. They often require no down payment and have lower interest rates and mortgage insurance costs.

The most common USDA loan programs include:

• Single Family Housing Direct Home Loans: Also known as the Section 502 Direct Loan Program, this program is for low and very-low-income applicants in rural areas who are in need of decent and safe housing.

• Single Family Housing Guaranteed Loan Program: This program, also called the Section 502 Guaranteed Loan Program, helps approved mortgage lenders provide low and moderate-income households with the chance to own adequate housing as their primary residence in eligible rural areas.

• Rural Repair and Rehabilitation Loans and Grants: The Section 504 Home Repair program provides loans and grants to homeowners to repair, improve or modernize their homes, as well as grants to elderly low-income homeowners to remove health and safety hazards.

There are down payment assistance programs specifically tailored to meet the needs of veterans. These programs recognize the service and sacrifices made by military personnel. They are designed to make homeownership more attainable for those who have served.

VA loans are a significant form of down payment assistance specifically for eligible military veterans, active-duty service members and surviving spouses. These loans are provided by private lenders but are guaranteed by the U.S. Department of Veterans Affairs (VA). They require no down payment, minimum credit score and mortgage insurance.

The most common types of VA loans include:

• VA Purchase Loans: These help veterans buy a home at a competitive interest rate without requiring a down payment or private mortgage insurance.

• VA Interest Rate Reduction Refinance Loan (IRRRL): The VA Streamline Refinance Loan allows existing VA loan holders to refinance to a lower interest rate with less paperwork and no appraisal or credit underwriting.

• VA Cash-Out Refinance: This option lets veterans refinance a non-VA loan into a VA loan or borrow against their home equity to take out cash.

• VA Jumbo Loans: These are designed for veterans who need to finance amounts greater than the conventional conforming loan limits. While regular VA loans typically do not require a down payment, VA jumbo loans might require a down payment if the loan amount exceeds the established conforming limits.

Homebuyers Choice loans are provided by the Navy Federal Credit Union. They are designed as a down payment assistance option for veterans and military families. They offer 100% financing to qualified members for buying primary residences. This means eligible borrowers can finance the entire purchase price of their home without needing a down payment and mortgage insurance.

Eligibility for the Homebuyers Choice loan is generally restricted to members of the Navy Federal Credit Union, which includes:

• Active duty members of the Army, Marine Corps, Navy, Air Force, Coast Guard, National Guard and Space Force
• Department of Defense civilian personnel
• Veterans, retirees and annuitants
• Military family members

Teachers, police officers and other public servants can struggle to afford homes in high-cost areas. Thankfully, there are programs that aim to make homeownership more accessible to them.

The Good Neighbor Next Door program is HUD's housing initiative for public servants such as teachers (pre-kindergarten through 12th grade), firefighters, law enforcement officers and emergency medical technicians. It offers a 50% discount on the list price of homes in designated revitalization areas, which HUD has identified as needing economic and community development.

The Good Neighbor Next Door program participants must commit to living in the property as their primary residence for at least 36 months. This residency requirement helps ensure that the program's benefits contribute directly to community stabilization and revitalization.