Down payment assistance: free and forgivable money for first-time buyers

Down payment assistance (DPA) is run by state and local housing agencies, cities, counties, and nonprofits. Most programs can be used for a down payment, closing costs, or both.

The main types of assistance

• Grants: This is free money you don't repay. Grants are the least common option, but they're growing.
• Forgivable loans: This second loan is wiped out over time, usually after you live in the home for five to 10 years. If you sell or refinance before then, you may owe some or all of it back.
• Deferred-payment loans: This is a second loan with no monthly payments. You repay it when you sell, refinance, or pay off your mortgage. Many charge no interest.
• Low-interest loans: You get a second loan with a small monthly payment, often at a low or zero interest rate.
• Matched savings programs: For every dollar you save toward a home, the program adds more, sometimes two or three dollars.
• Mortgage credit certificates: These don't help with the down payment, but they give you a federal tax credit every year for part of the mortgage interest.

Who qualifies?

Every program sets its own rules, but they also share a few things across the board.

• First-time buyer status: Many programs are for first-time buyers, but "first-time" usually means you haven't owned a home in the past three years, so past owners may qualify.
• Income limits: Many programs cap household income based on the area's median. About 62% of programs serve households earning more than $100,000, and some have no income limit at all.
• Purchase price limits: Programs often cap the price of the home you can buy.
• Homebuyer education: Most require a short class, often online, before closing.
• Living in the home: The home has to be your main residence, usually for a set number of years.
• Your own contribution: Some programs require you to put in a small amount of your own money, like $500 or $1,000.

Programs for specific groups

Some programs are designed for certain buyers, including teachers, first responders, health care workers, veterans, and first-generation homebuyers whose parents never owned a home. Some employers also offer down payment help as a job benefit, so check with your human resources office.

How to find programs near you

• Start with your state housing finance agency. Every state has one, and most run their own assistance programs.
• Check your city or county housing office. Local programs are often the most generous.
• Ask a HUD-approved housing counselor. Counselors know what's available locally, and many offer free or low-cost help.
• Ask lenders. Not every lender works with every program, so ask which ones they participate in.

The fine print to watch

Read the terms carefully before you sign. Look for answers to these questions:

• Do I have to repay this? If so, when?
• What happens if I sell or refinance early?
• Does using this program raise my interest rate or fees?
• Can it be combined with my loan type?

Some assistance comes with a slightly higher mortgage rate. It can still be worth it, but compare the total cost.