A Complete Guide to Down Payment Assistance

Everything you need to know about down payment and closing cost assistance

For many, the American dream is homeownership. However, if you can’t save for a down payment, which sometimes needs to be as high as 20% of the purchase price of the home, you may wonder if your American dream will ever come true.  Before you give up and decide you’ll never be able to invest in real estate, remember there are federal grants and programs that may help you to obtain the down payment you need. Additionally, many states and some local governments have their own down payment assistance programs. It pays to ask around.

FHA and VHA Home Loans

Because part of the home-buying process requires borrowers to have a down payment, many first-time homebuyers find it difficult to save and, therefore, need assistance. However, the federal government offers two types of home loans that reduce the traditional bank required 10 to 20% down payment, making home ownership more affordable.

FHA (Federal Housing Administration) Loans are available to most homebuyers with a FICO score of 580 or higher and generally offer a minimal down payment – as low as 3.5%.

VA (Veterans Affairs) Home Loans are available for qualified veterans, active duty personnel, reservists, National Guard members, and sometimes even to surviving spouses. Generally, there is no down payment unless one is required by the lender or if the purchase price is higher than the appraised price.

Down Payment Grants through the Federal Housing Administration

In addition to home loans, there are several down payment assistance and community redevelopment programs available through the FHA that offer affordable housing opportunities to first-time, low-income, and moderate-income homebuyers. These programs include:

  • Ameridream gifts (no need to pay it back) up to 10% of the purchase price.
  • Nehemiah offers up to 6% of the final contract sales price for anyone who qualifies for an FHA loan.
  • American Family Funds (AFF) is a non-profit program for down payment or closing cost assistance for FHA homebuyers.
  • Family Home Providers is a non-profit company offering up to 3% assistance to FHA-qualified families with steady employment and good credit.
  • Future Home Assistance is a non-profit charity group that will pay up to 6% of closing costs for FHA homes.
  • Grant America (Genesis Program) is a non-profit operated by the Penobscot Indian Tribal Nation and offers up to $34,000 in assistance.
  • Housing Action Resource Trust is non-profit offering help to homebuyers seeking FHA-qualified first mortgages (no home equity loans).
  • Newsong offers a one-time gift to any buyer who qualifies for an FHA loan to buy a residential or commercial property.
  • Partners in Charity is a non-profit offering assistance to homebuyers who qualify for FHA loans.
  • Responsible Home Ownership offers down payment assistance for FHA loans to low-income individuals with a steady income and good credit.
  • Quickdown provides down payment assistance to FHA-approved homebuyers.

ADDI Program through U.S. Housing and Urban Development (HUD)

For low-income first-time homebuyers who cannot afford a down payment and closing costs for a single-family home or rehabilitation assistance on a home purchased with ADDI assistance, the HUD program American Dream Downpayment Initiative (ADDI) may be appropriate for you.

The amount of assistance through ADDI may not exceed $10,000 or six percent of the purchase price of the home, whichever is greater. If funds are for rehabilitation to the residence, the repairs must be completed within one year of home purchase.

Key factors you need to know:

  • First-time homebuyers are defined as those who have not owned a home within three years before receiving ADDI assistance.
  • You may purchase a one- to four-family home, condominium, co-op, or manufactured house.
  • Your income cannot exceed 80% of the median income in your area.
  • You may use ADDI funds for a down payment, closing costs, or to rehabilitate a home.

Benefits of Down Payment Assistance Programs

Though there are skeptics who suggest that these programs grant financial assistance to individuals who can ill-afford a home, many suggest that they are great because they increase home ownership, which leads to more jobs and higher home prices, and they provide homeownership opportunities to those who might not otherwise have one.

The estimate is that there are at least a thousand programs across the U.S, and while there is no national database with information on every program in the country, homebuyers should speak with their lender or realtor and check with federal, state, and city websites to find out about the programs in their area.