How do first time home buyers get down payment assistance

Good news: Finding the down payment money for your first home may not be as daunting as you think. There are several options available to help with the down payment on a house, but many buyers don’t know about them. We’re here to provide several down payment options so you can see if you may be eligible.

Down payment assistance can include loans, grants, tax credits1 and other programs designed to help eligible homebuyers cover down payment or even closing costs. These programs are offered by federal, state, county or local government agencies, nonprofits or employers. Availability and qualification requirements vary by state. The American Dream program, offered by U.S. Bank, helps consumers with limited resources become homeowners, especially low-to-moderate income (LMI) borrowers and in LMI neighborhoods.

Get a glimpse into how down payment assistance programs work.

As a bank, we partner with Housing Finance Agencies (HFAs), government municipalities and nonprofit partners across the U.S. to make down payment programs available for potential homebuyers. These programs provide first-time homebuyers with money to cover some or all of their down payment. And some programs even help with closing costs.

Down payment assistance comes in many forms, but some of the most common include:

• Second mortgages with zero percent interest
• Grants, which are not required to be repaid
• Loans that may be deferred, due upon sale, refinance or payoff of first mortgage
• Loans that may be forgiven, typically a second mortgage with zero percent interest that’s forgiven over a specific number of years as long as the borrower remains in the home for that amount of time
• Mortgage Credit Certificates (MCCs), an annual federal income tax credit1 that helps offset interest expenses
• Gifts from family members and friends, while this may not be a formal down payment assistance program, it is a common form of assistance for many first-time homebuyers

There are several other programs and options out there that can help remove the barriers to homeownership. The range of programs available may vary based on where you’re looking to buy a home. Our knowledgeable mortgage loan officers are a great resource for helping you understand your options.

Find out if you’re eligible for down payment assistance.

The requirements for each program vary, but are typically based on your income, the price of the home and your history as a homeowner. Assistance is available only for a home you plan to occupy and isn’t available for vacation homes or investment properties. Many down payment assistance programs are for first-time homebuyers, but don’t count yourself out if you’ve previously owned a home. If you have not owned a home in the last three years, you may be considered a first-time homebuyer.

We can help you get past the down payment hurdle.

Since there are hundreds of down payment assistance programs available, it can be a challenge knowing where to start. For more information about what kind of assistance may be available in your area, contact a mortgage loan officer. We can help you navigate your options so you can focus on the fun things, like picking out your new furniture.

Down payments might be one of the most daunting parts of the home-buying process. We understand, it can be a lot of money. But taking advantage of down payment assistance programs such as loans, grants and tax credits1 can put your mind at ease. And we can help guide you through the process.

First-time homebuyer programs and grants can help make your goal of homeownership a reality. We’ve rounded up some of the best national grants, programs and loans for first-time homebuyers that can help get you into your first home without needing to make a 20 percent down payment.

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5 first-time homebuyer programs in 2022

1. Low-down payment conventional loans

Fannie Mae and Freddie Mac set borrowing guidelines for conventional loan programs. With a 3 percent minimum down payment, these programs are an affordable option for borrowers with a strong credit score and a lower down payment: 

• Conventional 97 mortgage – Fannie Mae and Freddie Mac both back the Conventional 97 program, which only requires 3 percent down, but a minimum credit score of 620. Like most conventional low-down payment mortgage programs, the borrower is also required to pay for private mortgage insurance (PMI), an additional cost with their monthly mortgage payment.
• HomeReady mortgage – Fannie Mae’s HomeReady mortgage program also requires just 3 percent down (with PMI, although it might be less expensive), and offers more flexible underwriting.
• Home Possible mortgage – Freddie Mac’s Home Possible mortgage program is similar to the HomeReady mortgage, with a 3 percent minimum down payment.
• HomeOne mortgage – This Freddie Mac mortgage also allows for just 3 percent down with PMI, but is available only to first-time homebuyers and comes with some special criteria.

None of these programs are available directly through Fannie Mae or Freddie Mac; they’re available through many types of mortgage lenders, including banks, online lenders and credit unions.

2. Low-down payment government loans

Government loans are mortgages backed by a government agency, either the Federal Housing Administration, Department of Veterans Affairs or Department of Agriculture. They aren’t created or funded by these organizations, however; they’re offered by approved mortgage lenders throughout the U.S. Some lenders even specialize in certain types.

FHA, VA and USDA loans

• FHA loan – Insured by the Federal Housing Administration, FHA loans allow borrowers to buy a home with a minimum credit score of 580 and as little as 3.5 percent down, or a credit score as low as 500 with at least 10 percent down. If you put down less than 20 percent, however, you’ll have to pay FHA mortgage insurance, which includes a 1.75 percent upfront fee and annual premiums. FHA also insures FHA 203(k) loans, which allow borrowers to buy and fix up a home with the same low credit and down payment flexibilities.
• VA loan– Qualified U.S. military members (active duty, veterans and eligible family members) can apply for loans backed by the U.S. Department of Veterans Affairs (VA). VA loans come with lower interest rates compared to other loan types, and don’t require a down payment. Borrowers, however, will need to pay a funding fee, but it can be rolled into your monthly loan costs. Some servicemembers might be exempt from paying this fee, as well.
• USDA loan– The U.S. Department of Agriculture (USDA) guarantees loans for some rural homes for up to 100-percent financing (in other words, there’s no down payment requirement). This doesn’t mean you have to buy a farm or shack up with livestock, but you do have to buy a home in a USDA-eligible area. There are also fees for this type of loan. 

Energy-efficient mortgage (EEM)

Making green upgrades can be costly, but you can get an energy-efficient mortgage (EEM) (either a conventional loan or one backed by the FHA or VA) to help finance them. This type of mortgage allows you to tack the cost of energy-efficient upgrades (think new insulation, a more efficient HVAC system or double-pane windows) onto your primary loan, without requiring a larger down payment. However, EEMs come with larger mortgage payments (since you’re borrowing more), and there are certain requirements to abide by, including getting an energy assessment.

Good Neighbor Next Door

The Good Neighbor Next Door program, sponsored by the U.S. Department of Housing and Urban Development (HUD), provides housing aid for law enforcement officers, firefighters, emergency medical technicians and pre-kindergarten through 12th-grade teachers. Through the program, borrowers can receive 50 percent off a home in a “revitalization area,” provided they live in the home for at least three years. You can search for properties available in your state on the program’s website.

HomePath Ready Buyer

Fannie Mae’s HomePath ReadyBuyer program is geared toward first-time buyers interested in a foreclosed home (“HomePath” home). After taking a required online homebuyer education course, eligible borrowers can receive up to 3 percent in closing cost assistance toward the purchase of a HomePath property, which is a foreclosed property owned by Fannie Mae. Of course, this limits your choice of properties, which also might need repairs, so this program isn’t for everyone.

Native American Direct Loan (NADL)

The Native American Direct Loan (NADL) provides financing to eligible Native American veterans and their spouses to buy, improve or build a home on federal trust land. This loan differs from traditional VA loans in that the VA is the mortgage lender. There is no down payment required with this type of loan, as well as no mortgage insurance, but there is a funding fee.

3. State and local first-time homebuyer programs

Many states and municipalities offer first-time homebuyer grants (which don’t have to be repaid) and low-interest mortgage programs:

Midwest

Northeast

South

West

4. Down payment assistance

First-time homebuyers can more easily afford a home with the help of down payment assistance (DPA), which is a sum of money given as either a grant, second mortgage (with varying repayment terms) or matched savings.

Down payment grants

Down payment or first-time homebuyer grants are essentially free money that help you cover your down payment or closing costs. Grants are usually awarded to low- or moderate-income borrowers, typically defined as earning no more than 80 percent of the area median income (AMI). They also come with a number of other requirements, such as limits on home purchase price and a minimum credit score. You might be able to apply for multiple grants, so don’t be shy about trying to score more financial assistance.

Here are three popular first-time homebuyer grants:

• National Homebuyers Fund
• Bank of America grant programs
• Chase Homebuyer Grant

To find more grant programs:

• Ask your loan officer or real estate agent for guidance — they might know about special grant programs in your area.
• Explore grants from local housing authorities or nonprofit organizations.
• Consider working with a local credit union or community bank — these might offer grant programs of their own.

Down payment assistance loans

Besides grants, there are a variety of down payment assistance loans — a second mortgage you take out with the first mortgage you’re using to buy the home:

• Low-interest loans – These are low-interest second mortgages for a small sum that help borrowers with the down payment and closing costs. These have to be repaid, usually over the course of a few years.
• Deferred-payment loans – These types of loans don’t charge interest, but need to be repaid in full when you sell the home or refinance the first mortgage.
• Forgivable loans – These are similar to the other kinds of assistance loans, with one key difference: This second mortgage will be forgiven so long as you stay in the home for a certain period of time (the exact amount depends on program) and up-to-date with your mortgage payments.

Down payment savings match

Down payment savings match programs help grow the amount a borrower puts down for a home by matching the borrower’s savings. These programs are structured over a specific amount of time and provide matched funds up to a certain amount, which can only be used for the down payment and closing costs.

For example, some state-level housing finance agencies offer Individual Development Accounts (IDAs), which might contribute three dollars for every one dollar the borrower saves. Those who qualify work with an assigned counselor to deposit funds into an IDA over a specified period of time. If the borrower follows the plan and saves the required amount, they’ll receive the match at closing.

5. Other types of first-time homebuyer assistance

Employer-sponsored programs

Employer-assisted housing (EAH) programs help employees with housing needs, usually in neighborhoods near the workplace. This assistance can come in many forms, such as a forgivable loan coupled with required homeownership education. EAH programs are often limited to certain occupations, and there could be other restrictions, such as a first-time homebuyer or specific tenure requirement, or income limits.                                                                                                                              

Nonprofit programs

Nonprofit programs can offer exceptional value to first-time homebuyers seeking an affordable mortgage. One example is Neighborhood Assistance Corporation of America, a nonprofit that provides low-rate mortgages to low- and moderate-income borrowers without requiring a down payment or closing costs. The nonprofit does this by using “character-based” standards to qualify borrowers, versus the risk assessment most mortgage lenders perform, according to the organization.

There are nonprofit programs available at the local level, as well. For instance, New York City offers a down payment assistance program offering up to $100,000 to eligible borrowers in any of the boroughs.

Benefits of first-time homebuyer programs

First-time homebuyer programs can help you better afford becoming a homeowner, either with more flexible credit and down payment requirements or a competitively-priced mortgage and down payment assistance (or a combination). Many programs also require you to take a homebuyer education class, which will prepare you for the financial responsibilities of homeownership.

Before seeking out a first-time homebuyer program, make sure you meet the definition of a first-time homebuyer: Often, a buyer who hasn’t owned a home within the last three years can qualify. This includes investors who own rental or investment properties, whether or not it’s considered your primary residence.

In addition, these opportunities might only be open to those who meet certain income criteria. Some government-backed programs, such as an FHA or USDA loan, require that the property meets certain standards before qualifying, as well.

Regardless of what programs you might qualify for, purchasing a home is a major financial move, so once you figure out a realistic budget, speak to a mortgage lender with experience with first-time homebuyers. This might not be your bank — it could be a credit union or other type of lender. To find a lender, you can:

• Locate your state’s housing finance agency website in the tables above and look for a list of “approved” or “participating” lenders.
• Look up lender reviews and testimonials through Bankrate.
• Visit the U.S. Department of Housing and Urban Development’s State Information page, locate your state and search for “Homebuying programs” or “Homeownership assistance.” In addition to state-level programs, this resource can help you find programs by city, county or town.

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