By Ana Staples -
CNBC
When you're looking to buy a home, coming up with the money you need for a down payment can be a daunting task.
Luckily, there are down payment assistance programs, known as down payment assistance programs (DPAs).
Those programs offer cash grants and low-cost loans, some interest-free, to qualifying homebuyers.
DPAs typically come from government-funded organizations that operate at the state and local levels, but there are similar programs at banks and credit unions as well.
At CNBC Select we explain what types of help may be available to you and how you can request it.
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Types of down payment aid
There are thousands of assistance programs across the country, most designed for first-time homebuyers.
Down payment assistance programs generally fall into two categories: grants and loans, and each has its own specifics for applying and being able to pay the financial contribution.
grants
Grants are perhaps the most attractive option for homebuyers because the money they provide for a down payment does not have to be paid back.
For example, the Iowa FirstHome program offers a $2,500 grant to help with down payment and closing costs.
MaineHousing's First Home Loan Program can provide $5,000 if you meet the program's requirements.
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Some banks also offer grants.
In certain areas, Bank of America can give qualified borrowers a grant of up to 3% of the home's purchase price—capped at $10,000—to use through its down payment grant program.
Chase Bank has the Chase Select Grant in some eligible areas, which provides $2,500 or $5,000 that can be used to lower your interest rate.
The rest can be used for installments or a down payment.
loans
Many DPAs are, in effect, second mortgages, which means that a loan is taken out for the down payment and may have to be paid back.
Down payment assistance loans are often very affordable and charge little or no interest.
Some are deferred loans where you only start paying back after 30 years or if you move, sell or refinance.
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For example, in Washington State, you can opt for Home Advantage down payment assistance, an interest-free second mortgage loan with payments deferred for 30 years.
The maximum amount of the loan can range between 3% and 5% of the total balance of the mortgage, depending on the type of mortgage.
Some of these loans are also forgivable.
The New York HomeFirst Down Payment Assistance Program offers a forgivable loan of up to $100,000 for a down payment or closing costs.
In order to have your loan forgiven, you must use the home as your primary residence for 10 years if the loan is for $40,000 or less, or 15 years if it is for a greater amount.
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If your state or county doesn't offer down payment assistance loan options that fit your circumstances, check out what your local banks or credit unions offer.
For example, if you live in Massachusetts and have served in the military, you may be eligible for Metro Credit Union's Operation Welcome Home.
That program offers a DPA loan option that covers up to 5% of the purchase price, for an amount of up to $15,000, at an interest rate of 2%.
How to Apply for Down Payment Help
Typically, down payment assistance programs operate at the state, county, or city level.
To get started, you can research online what programs are available in your area.
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If you're already working on your purchase with a lender, you can ask your loan officer about your options.
Keep in mind, however, that many of these programs require you to work with a participating lender.
If the lender you are doing your business with is not enrolled in one of these programs, you will need to change lenders.
If you know early on that you need help with a down payment, you can start the homebuying process by researching possible programs and contacting lenders who work with them.
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When selecting a program, look for conditions, eligibility, and restrictions, which typically include these requirements:
income limits
credit score requirements
Requirements for first time home buyers
Buy in a specific area
Purchase Price Limits
Use a licensed mortgage lender
Using a specific type of home loan (for example, a conforming loan or an FHA loan)
Acquire a habitual residence (and stay in it for a certain number of years)
Take an educational course for home purchase, approved by the competent authorities
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You may be able to apply for additional help
Depending on the state or municipality you live in, down payment assistance programs are plentiful and potentially overwhelming.
However, in some states there are public resources that will help you find the DPA that best fits your circumstances.
For example, while working on this article, we checked the Washington State Housing Finance Commission website for examples of DPAs, and there were many options.
However, the agency is willing to help you: fill out a virtual form with some basic information and the commission will email you some recommendations on the programs that best suit your characteristics.
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We did the test.
Filling out the form took one minute, and exactly eight minutes later, an agency staff member responded via email.
The message began with a mention of the program that they considered to be "the best option" in the situation we described, it also included some useful links, the steps to follow, and it ended by suggesting that they write to that address in case of any doubt.
While your local agency may or may not have a similar system, in most cases there is always a way to get in touch and ask for help if you don't know which programs you should check out.
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What if I don't qualify for down payment assistance?
Despite all the down payment assistance programs available, there's no guarantee you'll find one that's right for you. If that's the case for you, don't worry.
You can also search for mortgage programs and lenders that require a low down payment.
For example, with Ally Bank Mortgage you may be eligible for a HomeReady loan with as little as 3% down.
First-time homebuyers who qualify can get a SoFi Home loan, which also provides a 3% down payment.
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Certain types of government-backed loans allow you to buy a home with no money down.
These include VA loans designed for eligible military service members, veterans, and surviving spouses, as well as USDA loans for eligible rural households.
Both types of loans have specific eligibility criteria, but if you qualify, either can be a good fit.
Conclusion
Saving for a down payment can be a major hurdle in your home-buying journey, especially if it's your first time buying a home.
A down payment assistance program can help you achieve that goal.
When you choose the program that seems right for you, contact a licensed lender to take the next steps.
Even if it turns out that the DPA is not a viable option, your lender can help you find a mortgage product that fits your needs.
