APM BLOG

Down payments can be one of the most daunting parts of the homebuying process. We all know that buying a home costs money! Thankfully, you don’t necessarily have to drain your savings account to come up with the sum. There are other ways to secure a down payment, including gift funds, grants, and down payment assistance programs.

We’ve laid out all three so you can determine if any of these options are right for your financial situation as you navigate buying a house. It’s important to understand that the rules for these forms of down payment assistance vary by state, region, and even city and are subject to change at any time.

What Is Down Payment Assistance?

Down payment assistance (DPA) refers to a variety of programs designed to help qualified homebuyers cover some or all of the upfront costs associated with purchasing a home. Depending on the program, assistance may come in the form of grants, forgivable loans, deferred-payment loans, low-interest loans, or other financial assistance.

These programs are often offered through federal, state, local, nonprofit, or housing finance agencies and are intended to make homeownership more accessible for qualified borrowers. Program availability, eligibility requirements, and benefits vary based on where you’re buying a home and the mortgage program you choose.

Before we dive into the details, there are a couple of things you should know:

• Not all loan programs allow down payment assistance, gift funds, or grants. You’ll need to consult with your mortgage loan officer regarding loan programs.
• Down payment assistance typically applies only to a primary residence. Although there are some exceptions to this rule, generally speaking, you cannot buy a second home or investment property with down payment assistance programs.

You Don’t Always Need 20% Down

One of the biggest homebuying myths is that you need a 20% down payment. Many qualified homebuyers purchase a home with significantly less, and down payment assistance programs may help reduce upfront costs even further. The right mortgage solution depends on your financial situation and the loan program you choose.

How Do Down Payment Assistance Programs Work?

Most down payment assistance programs work alongside your mortgage rather than replacing it. Once you’ve qualified for a mortgage, your Loan Advisor can help determine whether you’re also eligible for one or more down payment assistance programs.

Depending on the program, the assistance may help cover:

• Your down payment
• Closing costs
• Both

Some programs provide funds that never have to be repaid if certain requirements are met, while others are structured as second mortgages with deferred or low-interest repayment terms.

Because every program is different, reviewing your options with an experienced Loan Advisor is one of the best ways to determine which solutions fit your financial goals.

Each option has different eligibility requirements, documentation standards, and program guidelines. Your APM Loan Advisor can help determine which solutions may be available based on your financial situation and where you’re purchasing a home.

Gift Funds

“Gift” is one of the best four-letter words out there—and for good reason! We all love receiving money for special occasions like weddings, graduations, birthdays…or maybe simply because we’re first-time homebuyers and a loved one wants to help us out.

Either way, gift funds are a wonderful way to take some of the pressure off first-time homebuyers. However, there are a few steps you need to follow if you plan to use a significant monetary gift toward your down payment.

Let’s start with what “significant monetary gift” really means. For conventional loans, it’s typically defined as any amount that equates to more than half of your total monthly qualifying income. For example, if you make $3,800 a month, a significant monetary gift would be any single deposit of $1,900 or more. The gift standard for FHA or USDA loans is anything over 1% of the home’s purchase price, sale price, or appraisal value, whichever is lower.

The mortgage loan application process typically includes 60 days’ worth of bank statements, which means that a mortgage lender or underwriter will want to understand the origin of any large sums that aren’t accounted for in your history of assets and income.

Not to worry—these gift funds can be easily acknowledged through a gift letter that indicates that this money is, in fact, a gift and not a loan. The letter should contain the gifter’s name, address, phone number, relation to you, dollar amount gifted, and date of the gift. You may be required to show a paper trail of the gift, so be sure to keep receipts and statements.

There are some parameters on who can give you money for a down payment. For conventional loans, this gift needs to come from a family member, which can include anyone from spouses and domestic partners to step-aunts, adopted cousins, or grandfathers-in-law.

In addition to gifts from family members, FHA loans also allow you to receive gift funds from a close friend, your employer, a labor union, or a charitable organization. USDA and VA loans allow you to receive gift funds from just about anyone—as long as that person isn’t involved in the home transaction. This disqualifies the home’s seller, builder, developer, or either party’s real estate agent.

Keep in mind that although you don’t have to pay taxes on the gift funds, the person giving you the gift might, so it’s always wise to talk to a tax professional. Your loan officer will be happy to explain more about gift fund requirements anytime.

Grants

Down payment grants can help bridge the gap between the money first-time homebuyers can put toward a down payment and the remaining balance. Down payment assistance grants are offered through government agencies like the Department of Housing and Urban Development (HUD) and through nonprofits like the National Homebuyers Fund.

Who Qualifies for Down Payment Assistance Grants?

Eligibility varies by program, but many grants consider factors such as:

• Household income
• Credit profile
• First-time homebuyer status (when applicable)
• Property location
• Occupancy requirements
• Purchase price limits

Some assistance programs are also available for repeat homebuyers or individuals working in professions such as education, healthcare, law enforcement, firefighting, or emergency medical services.

Not every program requires you to be a first-time homebuyer, so it’s worth exploring all available options.

Though these mortgage programs can vary by state, amount, and requirements, they typically take into account the home price and geographic area, as well as your income and credit score.

Your loan officer will also know what these programs require, so be sure to ask them if you’re interested in more information.

Generally speaking, grant programs offer down payment assistance free and clear, meaning you don’t have to pay the money back (though you’ll want to read the fine print). Some programs require stipulations like a recapture period, which means the money is free and clear only if you stay in the home for a specific number of years.

Loans

Down payment assistance loans are a broad category that can mean different things. They can range from interest-free, forgivable loans to interest-free deferred-payment loans and even low-interest-rate loans. Some of these programs have eligibility requirements. These can include income limits, approved geographic locations, purchasing a home below the given median home price for that area, how much money you can put toward your down payment, and more.

Down payment assistance homebuyer programs can come from:

• Federal agencies
• State agencies
• Regional organizations
• Community organizations
• Charitable funds

Many people are surprised to learn that “down payment assistance” doesn’t always mean free money. Some programs are structured as loans that may:

• Be completely forgivable after a certain number of years
• Require no monthly payments until the home is sold or refinanced
• Offer below-market interest rates
• Help cover both the down payment and eligible closing costs

Understanding how each program works is important before deciding which option best fits your long-term financial goals.

In addition, some programs offer multiple options, including using these funds as a payment for closing costs. For a breakdown of what these types of programs are and how to find them, visit our blog.

How to Apply for Down Payment Assistance

The application process for down payment assistance typically begins with getting pre-approved for a mortgage.

Your APM Loan Advisor can help you:

• Review available assistance programs
• Determine your eligibility
• Gather required documentation
• Complete any program-specific applications
• Coordinate your mortgage and assistance program throughout the homebuying process

Because eligibility requirements and available funding can change, starting early gives you the best opportunity to explore all available options.

APM Can Help You Navigate Down Payment Assistance Options

Though not every first-time homebuyer will qualify for down payment assistance—or be lucky enough to have a generous relative—they’re worth looking into. Examining all your options before plunking down your hard-earned cash is a great way to put your mind at ease when it comes to down payments.

A trusted APM Loan Officer is ready to help you find solutions that get you into your dream home. Click here to locate an APM Loan Advisor near you.

Frequently Asked Questions About Down Payment Assistance

What is down payment assistance?

Down payment assistance refers to financial programs that help qualified homebuyers cover some or all of their down payment and, in some cases, closing costs. Assistance may be provided through grants, forgivable loans, deferred-payment loans, or other housing assistance programs.

How do down payment assistance programs work?

Most programs work alongside your mortgage. Eligible buyers receive financial assistance to help reduce upfront costs, making homeownership more affordable.

What is the difference between a first-time homebuyer grant and a loan?

A grant generally does not require repayment if program requirements are met. A down payment assistance loan may require repayment immediately, over time, when the home is sold, or may be forgiven after meeting specific occupancy requirements.

What are the eligibility requirements for down payment assistance?

Requirements vary by program but often include income limits, property location, occupancy requirements, purchase price limits, and minimum credit guidelines. Some programs are available only to first-time homebuyers, while others are open to repeat buyers.

What types of down payment assistance programs are available?

Programs may include:

• Down payment assistance grants
• Forgivable loans
• Deferred-payment loans
• Low-interest second mortgages
• Closing cost assistance
• Employer-sponsored homebuyer programs

How do I apply for down payment assistance through my mortgage lender?

The first step is speaking with an experienced Loan Advisor. They can help identify available programs, determine eligibility, complete the required documentation, and coordinate your mortgage application with the appropriate assistance program.

*Refinancing may result in finance charges that may be higher over the life of the loan. Consult with your loan advisor for details.