Down Payment Assistance Programs, Homebuyer Grants, And Low Money Down Home Loans By State

What Is A Homebuyer Grant?

A homebuyer grant is money that may not have to be repaid if the buyer follows program rules. Grants are often used for down payment, closing costs, prepaid taxes, prepaid insurance, escrow setup, and sometimes affordability gaps.

What Is Down Payment Assistance?

Down payment assistance may be a grant, second mortgage, deferred loan, forgivable loan, repayable loan, shared appreciation loan, or soft second mortgage. The buyer must understand whether the assistance creates a lien, repayment trigger, resale restriction, or refinance requirement.

What Down Payment Assistance Really Means

Down payment assistance, often called DPA, is financial help designed to reduce the amount of money a buyer needs to bring to closing. It may come from a state housing finance agency, city, county, nonprofit, employer, bank, lender program, or special homeownership initiative.

DPA is not always free money. Some assistance is forgivable, some is deferred, some is repayable monthly, and some becomes due when the property is sold, refinanced, transferred, paid off, or no longer used as the borrower’s primary residence.

• May help cover the required down payment
• May help cover closing costs
• May help cover prepaid taxes and insurance
• May help cover escrow setup
• May reduce the amount of cash needed before closing
• May help buyers purchase sooner instead of waiting years to save

Types Of DPA Structures

Before accepting assistance, buyers should understand the structure. The structure determines whether the money must be repaid and when repayment may be triggered.

• Grant: May not have to be repaid if rules are followed.
• Forgivable second mortgage: May be forgiven over time.
• Deferred second mortgage: No monthly payment, but repayment may be due later.
• Repayable second mortgage: Monthly repayment may be required.
• Shared appreciation loan: Buyer may repay the original assistance plus a share of future appreciation.
• Soft second: Usually subordinate to the first mortgage with special repayment terms.

How DPA Can Help With Little To No Money Down

A buyer purchasing a $300,000 home with FHA financing may need 3.5 percent down, which equals $10,500. If the buyer qualifies for $10,500 or more in assistance, the down payment may be covered. If the seller also contributes toward closing costs and the lender provides a credit, the buyer may be able to reduce the final amount needed at closing even more.

What Buyers Should Watch For

The biggest mistake buyers make is only looking at the assistance amount without reviewing the repayment terms. A $15,000 assistance program may be helpful, but the buyer needs to know if the money is forgiven, deferred, repayable, or due when refinancing.

• Ask if the assistance must be repaid.
• Ask if there is a required occupancy period.
• Ask if refinancing triggers repayment.
• Ask if the program has income limits.
• Ask if the property must be in a certain city or county.
• Ask if the assistance can cover closing costs or only down payment.
• Ask if the first mortgage rate is higher with the assistance program.

What Makes A Grant Different?

A homebuyer grant is usually more favorable than a repayable assistance loan because the buyer may not have to repay the funds if all program rules are followed. Grants are often used to encourage homeownership for first-time buyers, workforce buyers, Veterans, low-to-moderate income buyers, and buyers purchasing in targeted areas.

However, grants still have rules. Buyers may need to complete homebuyer education, meet income limits, occupy the home as a primary residence, use an approved lender, and remain in the home for a certain period.

Common Grant Uses

• Down payment
• Closing costs
• Prepaid property taxes
• Prepaid homeowners insurance
• Escrow reserves
• Mortgage related settlement charges
• Sometimes repairs or affordability gaps, if the program allows it

When A Grant May Still Require Repayment

Even a grant may have repayment rules if the buyer violates the program terms. For example, repayment may be required if the buyer sells too soon, moves out before the required occupancy period ends, refinances outside program rules, rents the property, or provides inaccurate information during the application.

• Moving out early may trigger repayment.
• Turning the home into a rental may trigger repayment.
• Selling before the affordability period ends may trigger repayment.
• Refinancing may trigger review or repayment depending on the program.

Grant vs. DPA Calculator Difference

The Homebuyer Grant Calculator is best when the program offers a fixed dollar amount, such as $5,000, $10,000, $15,000, $25,000, or $35,000.

The Down Payment Assistance Calculator is best when the program offers a percentage of the purchase price or loan amount, such as 3 percent, 3.5 percent, 4 percent, 5 percent, or 6 percent.