Down Payment Assistance Programs: Low or No Money Down Mortgages

Understanding Down Payment Assistance Programs

When it comes to buying a home, one of the most common misunderstandings is that you need at least a 20% down payment. This misconception can discourage potential buyers, especially first-time homebuyers, from pursuing their dream of homeownership. Good news – there are several low and no down payment options, including down payment assistance programs, designed to help people become homeowners without hefty upfront costs. Discover what down payment assistance is, how it works, benefits, and other lower down payment mortgage options.

What Are Down Payment Assistance Programs?

Down payment assistance (DPA) refers to programs designed to provide financial aid to help cover part or all of the down payment and, in some cases, closing costs associated with purchasing a home. These programs can significantly reduce the upfront costs of buying a home and help more people across the country buy a home.

How Does Down Payment Assistance Work?

Down payment assistance programs are often provided by state and local governments, non-profit organizations, or other entities dedicated to promoting homeownership in local communities. DPA can come in various forms, such as grants, forgivable second loans, deferred payment loans, and tax credits. Down payment assistance programs can have specific guidelines, often targeted for first-time homebuyers and lower income areas.

Grants. These are funds that do not need to be repaid. Essentially, they are a gift to help cover a home’s down payment.
Forgivable Loans. When a loan is forgivable, a borrower doesn’t need to repay it after a certain time period and agreed upon criteria is met. For example, living in the primary home for a set number of years.
Deferred Payment. This refers to loans that do not need to be repaid until the home is sold, the borrower refinances, or the mortgage is paid off.
Tax Credits. Some down payment assistance programs offer mortgage credit certificates (MCCs) that provide a direct tax credit based on the interest paid on the loan.

Common Eligibility Requirements

While loans and down payment assistance vary by lenders and program guidelines, here’s an overview of some general eligibility criteria that may be considered.

Income Limits. Many mortgage DPA programs have maximum income limits based on family size and location. Some lenders may consider how a borrower compares to the Area Median Income (AMI).
Credit Score. Like most mortgages, credit score is a major factor. A minimum credit score is typically required, such as 620 for FHA and VA.
First-time Homebuyers. Several down payment assistance programs are designed specifically for first-time homebuyers or people who haven’t owned a home within the past three years. Homebuyer education may also be included with the program as well.
Primary Residence. In general, down payment assistance is used toward owner-occupied primary residences.
Location. Properties may also need to be in a specific geographic area or within a targeted zone for revitalization to qualify.
Profession. Some down payment assistance programs may also target specific occupations, such as first responders, educators, or healthcare providers. These options help give back to those who serve our communities.

Benefits of Down Payment Assistance

Affordability. Evidently, down payment assistance can greatly reduce the amount of upfront costs when buying a home. When getting pre-qualified for a DPA program, you’ll be able to determine the right programs and potential savings.
Increased Accessibility. Many people who might not have qualified for a traditional mortgage due to lack of savings, may qualify using down payment assistance. This helps open more doors to homeownership in your community.
Flexibility. Down payment assistance typically can be combined with various loan types, including FHA, VA, and USDA. These typically already have lower down payment requirements to begin with. Work with an experienced, knowledgeable loan officer to discuss your options and understand what you may qualify for.

Types of Assistance

Local and State Bond Programs

Many local, regional, and state governments offer down payment assistance programs. Supreme Lending is proud to partner with these types of organizations to provide a wide range of DPA options across the country. Examples include statewide programs through the Texas State Affordable Housing Corporation (TSAHC) or California Housing Financing Agency (CalHFA), and more localized options, such as the Orange County Housing Finance Authority’s First-Time Homebuyer program.

Specialized Options

Fannie Mae and Freddie Mac also have down payment assistance options, such as HomeReady® and Home Possible® that offer down payment requirements as low as 3% for Conventional loans.

Supreme Lending’s Down Payment Assistance

Through Supreme Lending’s Supreme Dream 100% financing, no-money-down program, qualified borrowers get a 30-year fixed FHA loan, followed by a fully forgivable second loan to be used toward down payment, closing costs, and pre-paids. A unique feature of this program is that no income limits are required and it can be combined with a 2-1 temporary rate buydown.

Other Low Down Payment Mortgages to Consider

FHA loans can require down payments as low as 3.5%.
VA loans offer qualified military Veterans 100% financing, meaning zero down payment required.
USDA loans, guaranteed by the U.S. Department of Agriculture, offer a zero down payment requirement for properties in eligible rural areas.
Click here for an overview of common down payment requirements broken down by mortgage type.

At Supreme Lending, we’re always looking for innovative ways to help make homeownership more affordable. Whether it’s through local bond programs, low down payment loans, or our own Supreme Dream down payment assistance.