Is Down Payment Assistance a Loan?

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Home buying is stressful, but to add falling short of a down payment can be something akin to a disaster. When you don’t have enough money to cover a down payment, that throws a wrench into the whole home buying operation. Thankfully, there is help in the form of down payment assistance (DPA).

Key takeaways

  • DPA helps homebuyers by reducing the amount of money needed for a down payment through grants or low-interest loans.
  • Amount awarded varies by program and state, with average savings of over $17,000 throughout the loan.
  • Types of DPA include grants, low-interest loans, and matched savings programs; eligibility varies by program, but generally requires low/moderate income and first-time homebuyer status.
  • To apply, research available programs, reach out to them for questions, and find a mortgage lender that works with the chosen program.

What is down payment assistance?

Down payment assistance is a program designed to help reduce the amount of money potential homeowners need to save for a down payment. This assistance often comes in the form of grants or low-income loans.


How much funding can you get from down payment assistance?

The amount of money awarded from a DPA is influenced by several factors, including the program and the state you’re from. However, a RealtyTrac study found that, on average, people saved over $17,000 throughout the life of their loan by using down payment assistance.


Types of down payment assistance available

There are various programs available for down payment assistance. However, the type and amount of these programs vary by state, so it is a good idea to look into the programs specific to your area.



Grants are the best option. They never have to be repaid! Think of it as a giant gift of money. The amount and type of grant vary by state and some grants may have extra guidelines for eligibility.


Forgivable loans at zero percent interest

Another option for down payment assistance is a forgivable loan. These loans are second mortgages at zero percent interest that are forgiven after you live in a house for a set number of years. The forgiveness period varies and is determined by the lending institution. If you move before the forgiveness period occurs, you will have to pay back a portion or all of the loan.


Low-interest loans

Down payment assistance can come in the form of a second mortgage granted simultaneously with the first one. The key is to have a low-interest rate (some lending institutions even offer zero percent!) as you will be paying this loan back. Essentially, you have two monthly mortgage payments, but the help from the second mortgage can cover the costs of a down payment.


Deferred payment loans at zero percent interest

Combining the forgivable loan along with the low-interest loan and you have what is called a deferred payment loan. These 0% interest loans don’t have to be paid as long as you live in your house. However, they are not entirely forgivable. You will have to pay back this type of down payment assistance when you move or sell your house or refinance your first mortgage.


Matched savings program

Another type of assistance is the matched savings program, also known as the individual development accounts. With this, homebuyers deposit an amount into a financial institution, and the institution matches the amount. You then can take that whole amount and apply it to a down payment.


Types of loans where you can use DPA

There are a variety of loans that you can have in conjunction with down payment assistance. These loans often come from government agencies, but some also are private.

The most popular are:

  • HUD loan: The U.S. Department of Housing and Urban Development (HUD) makes it easier for those with shaky credit or with low- or moderate-income to own a house through their various programs.
  • FHA loan: The Federal Housing Administration (FHA), a division of HUD, are also loan options. These loans are backed and insured by the FHA and help first-time homebuyers with buying a house.
  • VA loan: The Veteran’s Administration (VA) offers loans to current members of the Armed Forces, veterans, and in some cases, spouses of deceased service members. You must meet service requirements to qualify.
  • USDA loan: If you are looking to buy a home in a rural or suburban area, you may want to look into a loan from the U.S. Department of Agriculture (USDA). These loans have specific income and property requirements, so be sure to know if you qualify.


The exact eligibility requirements for down payment assistance vary by program and state and whether you live in a “target area.” However, there are some general guidelines:

  • You must be a first-time homebuyer*
  • Income level is low or moderate
  • The home is your primary residence
  • The home is in a “target area” determined by the census
  • The down payment assistance is used with an approved mortgage loan
  • You work with an approved mortgage lender for the program

*You can be a repeat home buyer if you haven’t bought a property for, at least, the past three years.


How to apply for down payment assistance?

To apply for DPA, you first start by researching what programs are available in your state, county, and city. HUD has a list of programs by state. Reach out to those programs if you have any questions that aren’t covered in your search. And then, find a mortgage lender that works with that program.


Is down payment assistance a good idea?

If you are a first-time homebuyer with a low- or moderate-income level and shaky credit, you may want to seriously consider your options using a down payment assistance program. It is important to be vigilant and conduct thorough research on each program to find the right one for you. Your mortgage lender can also be a great source of information on certain programs. All in all, if you meet the general requirements for DPA, then you should be looking into what your options are and get one financial step closer to owning a home.

You can also reach out to Hero Home Programs™ for more information about these programs. Request a consultation online today!

Picture of Jacquelyn Sublett
Jacquelyn Sublett

I love teaching and writing on real estate, finance and mortgage topics. I find it fulfilling hearing stories of first time home buyers who we have helped with the home buying process. Writer for the Hero Homebuyer Programs™

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