How To Get Down Payment Assistance: Your Quick Guide

If you can afford a mortgage payment and handle maintenance costs, the remaining obstacle as a home buyer tends to be the down payment. However, this doesn’t have to be a point of despair. There may be financial assistance available for qualified borrowers. Let’s discuss how to get down payment assistance.

Mortgage Down Payment Assistance, Explained

Down payment assistance (DPA) is intended to help home buyers afford the upfront cost of purchasing a home. Despite its name, down payment assistance can be used for both down payment funds as well as closing costs.

Although every program is different, many of these options are intended to help low-income and first-time home buyers. These groups often need the most help because they’re not obtaining down payment funds based on the sale of a previous home.

Down payment assistance comes in several forms:

• Grants: Grants are money that doesn’t need to be paid back. Because it’s free, this is the most sought after form of down payment assistance.

• Deferred loans: This is a down payment assistance loan that doesn’t need to be paid back right away. This might mean that payments don’t start for a certain number of years or that repayment isn’t owed until a specific event is triggered, like the sale of your home, a refinance or otherwise paying off your primary loan.

• Forgivable loans: These loans don’t need to be paid back if certain conditions are met. For example, many DPA loans come with the stipulation that you use the home as your primary residence for a number of years. An employer might require you to work with them for a given amount of time after receiving assistance.

• Individual Development Accounts (IDAs): IDAs are state-run programs that match the savings people put in their bank accounts toward specific goals that advance financial independence, including housing. There are typically matching limits, but the funds can be used toward your down payment.

• Matched savings accounts: These are the same as IDAs, but they’re not state-supported. Rather, banks and credit unions may offer them to attract depositors.

• Low-interest loans: These are like deferred or forgivable loans, but the repayment starts right away.

Finally, be sure to work with your mortgage lender because not every lender accepts all forms of down payment assistance. While we’ll go into greater detail in a bit, this usually has to do with the way liquidation works if your home falls into foreclosure.

How Much Money Is Needed For A Down Payment?

Not so long ago, the conventional wisdom was that you should have 20% of the purchase price to use as a down payment on a home. There are some good things about going this route because it means not paying for private mortgage insurance (PMI) on conventional loans. Plus, the higher your down payment, the lower your rate tends to be as well.

However, most first-time and low-income home buyers can qualify with a down payment as low as 3%. In fact, with ONE+ from Rocket Mortgage^®, you can put as little as 1% down and we give you a 2% grant toward your down payment.¹ This is available to both first-time and repeat home buyers and there are no restrictions on where you live. Here are the requirements:

• The income used to qualify for your mortgage can’t be higher than 80% of the median in the area you’re looking to qualify. Fannie Mae has an area median income lookup tool.

• Your qualifying FICO^® Score must be 620 or better.

• This is only available for single-unit primary residences.

• Your down payment can be no higher than 5% after the 2% grant is included.

FHA loans offer the ability to qualify with a down payment of as low as 3.5% if you have a qualifying credit score of 580 or better.

VA loans are available for eligible veterans, active-duty service members, reservists, National Guard personnel, and qualified surviving spouses. These don’t require a down payment, although most require you pay a funding fee either at closing or built into the loan.

USDA loans are available for those who meet income limits that are looking to live in a designated rural area. The big benefit here is the ability to put nothing down as well. Rocket Mortgage doesn’t offer USDA loans at this time.

Beyond minimums to qualify for the loan, your personal finances will dictate how much you can put down. To secure the best interest rate and potentially avoid paying for mortgage insurance, you’ll want to put down as much as you can without putting other goals in peril. You’ll also have to pay certain closing costs, so don’t forget to plan for these.

Closing Costs

Closing costs are all the other fees besides down payment associated with setting up your loan. This can include everything from title work to the appraisal to the cost of filing paperwork with your county and setting up your escrow account.

Every loan is different, but generally, you can expect closing costs to be in the range of 3% – 6% of the purchase price of your home. You can cut costs by negotiating seller concessions to having them pick up part of the costs or taking a lender credit. That involves trading a slightly higher rate for lower upfront costs. However, down payment assistance can also be used to pay for closing costs.

How To Get Down Payment Assistance: 5 Steps To Follow

There are down payment assistance programs available for many borrowers but getting it may be a process. Here are the steps you should follow:

1. Research Available Programs

Before picking the right one for you, you need to know what down payment assistance programs are out there. There are several resources you should look into.

• Lender programs: The first place to look may actually be your lender. That’s because your lender is already set up to handle them and there’s less chance of unforeseen roadblocks down the line.

• Gifts from family members: Before looking deeply into down payment assistance, consider other resources you may have at your disposal. Family members may wish to contribute to your down payment by providing a gift. FHA also allows gifts from close friends with an interest in you.

• Government-sponsored programs:often have their own down payment assistance programs that they offer with approved lenders. However, there are drawbacks of these programs to consider, mentioned later in this article. At the state level, it’s common for programs to only be available from certain lenders.

• Housing-focused nonprofits: Nonprofits with homeownership as part of their mission aren’t a bad place to look.

• Employer: Some employers will offer assistance in exchange for working a certain number of years for them. In the case of a grant, it can function as a reward for being with them for some years already.

You should also ask fairly early on what types of DPA your lender will accept. Not all lenders accept all forms of assistance.

2. Figure Out What You’re Eligible For

The next step is to narrow your list down to what you’re eligible for. While every program is different, there are some requirements that are more common than others.

• Many require you to be a first-time home buyer.

• Some do credit checks and financial assessments to make sure you will be able to afford your payment.

• Some require buyers to contribute a nominal amount to the down payment.

• Employers may require someone to work a number of years.

3. Learn More About The Program

Once you’ve found a program you’re eligible for, it’s important to understand the terms inside and out. For example, if it’s a loan with deferred repayment, know how many years you have before those payments start or what events trigger the loan coming due. If the loan is forgivable, be sure you’re aware of the conditions you’ll have to meet.

For loans, you’ll also want to make sure you understand the basics, such as the interest rate and how long you have to pay it off. Some forms of DPA may require you to take home buyer education classes as well.

4. Find An Approved Lender

Some programs, particularly those offered by state and local housing finance agencies, require you to work with one of their preferred lenders. Be aware of this because it could limit your ability to shop around for the best terms.

5. Fill Out An Application

Once you’ve picked out a program and made sure your lender will accept it, it’s time to apply. The application process is going to be different for every program, but much of the documentation they ask for may be the same as what you would provide during the mortgage application process, such as:

• Credit check
• W-2s/1099s
• Bank statements
• Pay stubs
• Tax returns
• Any other information required to show you’re in the cohort the program serves

FAQs On Getting Home Loan Down Payment Assistance

Now that we’ve gone over the broad strokes, let’s touch on a few questions you still may have.

Where can I find local down payment assistance programs?

We recommend you start by talking to your lender. They may offer specific programs. Regardless, they should be able to tell you which ones they accept. Beyond that, the Department of Housing and Urban Development local buying page, state and local housing finance agencies and municipalities are all good places to start.

Be sure to verify the legitimacy of many third-party DPA sources before providing your personal information.

How can I apply for down payment assistance?

Applying for down payment assistance is different for every program. However, it’s often not all that different from the application for buying a house. You may be asked to provide income and asset documentation as well as submitting to a credit check.

How long does it take to get approved for down payment assistance?

It’s not possible to definitively answer this question because every program operates a little differently. However, the same advice we would give in smoothing the process for a mortgage application applies to your application for down payment assistance: You may be able to help the process along by promptly providing whatever information is requested of you.

What do I need to qualify for down payment assistance?

Although qualifications vary based on the program, programs often require that you be a first-time home buyer to receive assistance. Others have income limits. You may be required to submit to a credit check, and have similar qualifications to the credit score needed to buy a house. Others are targeted to serve specific populations.

The Bottom Line

While you no longer need 20% down to buy a home, the upfront expense is still a significant hurdle for many. Down payment assistance is intended to help with both the down payment and closing costs associated with a mortgage.

When researching down payment assistance programs, be aware of what’s available in your area as well as what you’re eligible for, the terms of the assistance and whether a lender will accept it. If you’re ready to move forward, we can help you start the mortgage process.

¹ Client will be required to pay a 1% down payment, with the ability to pay a maximum of 3%, and Rocket Mortgage will cover an additional 2% of the client’s purchase price as a down payment, or $2,000. Maximum grant amount is $7,000. Offer valid on primary residence, conventional loan products only. Maximum loan amount of $350,000. Cost of mortgage insurance premium passed through to client effective January 2, 2024. Offer valid only for home buyers when qualifying income is less than or equal to 80% area median income based on county where property is located. Not available with any other discounts or promotions and cannot be retroactively applied to previously closed loans or loans that have a locked rate. This is not a commitment to lend. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply.