Programme
Down Payment Assistance
Money toward the cash to close, in four structures that behave completely differently.
Down payment assistance is not one thing. It is a category covering grants that are never repaid, forgivable second mortgages that vanish over a term, deferred seconds that fall due on sale or refinance, and amortising seconds you pay every month from closing. Programmes are run by state housing finance agencies, by counties and cities, and by some employers and lenders. Choosing well means identifying which of the four structures you are being offered before anything else, because the differences between them are far larger than the differences between the amounts.
- Grants, forgivable, deferred or amortising
- State, county, city and employer programmes
- Homebuyer education is usually required
- Funds are appropriated and can run out
Floor four
What it gives you
It closes the gap that actually stops people buying
For most first-time buyers the obstacle is not the monthly payment, it is having the cash. Assistance of a few thousand dollars toward the down payment and closing costs is frequently the difference between renting and owning.
A grant is genuinely free money
Where a programme is structured as an outright grant with no lien and no recapture, there is nothing to repay under any circumstances. It is the cleanest form and the one worth looking for first.
It can be combined with the ordinary programmes
Assistance sits alongside a conventional, FHA, VA or USDA first mortgage rather than replacing it. FHA in particular allows the entire minimum required investment to come from an approved assistance programme.
The counselling requirement is worth more than it looks
Most programmes require homebuyer education from a HUD-approved counselling agency. It is a genuine consumer protection and the best place to have the escrow, insurance and maintenance conversation before you own a house rather than after.
Floor three
What this programme costs you
Every programme buys you something by charging you something else. This is the half a brochure leaves out, and it is the half that decides whether the programme is right for you.
- Trade-off 01
A second lien constrains everything you do later
A forgivable or deferred second sits behind the first mortgage and has to be dealt with before you can refinance. Some programmes will subordinate — agree to stay in second place behind a new first mortgage — and some will not, or will only on conditions. If yours will not, a refinance means repaying the assistance in full, which can make an otherwise sensible refinance impossible. Ask about subordination before you accept the money, not when you want to refinance.
- Trade-off 02
The forgiveness clock starts at closing and does not care why you moved
A five-year forgivable second forgives over five years. Selling, refinancing or moving out in year four means the unforgiven balance falls due at once — including for a job transfer, a divorce or a growing family. Match the forgiveness term to how long you genuinely expect to stay, and treat anything shorter as a loan rather than a gift.
- Trade-off 03
Assistance narrows the loan you may use, and the first mortgage may be priced above market
Most programmes bind you to a specific first mortgage product, a purchase price cap, an income cap and sometimes a designated area. The rate on that first mortgage is set by the programme and can sit above what you would otherwise be offered. A borrower who would have qualified anyway can end up paying more over thirty years than the assistance was worth — so price the whole package, not the cheque.
- Trade-off 04
The money runs out, and the rules change with the appropriation
Programme funds are appropriated annually and are frequently exhausted before the year ends. Terms are revised between funding rounds. An assistance programme you were counting on can close between your pre-approval and your offer, which is a good reason to have a plan that works without it.
Floor two
The published rules, and where they come from
These are rules, not prices. This site publishes no rates, so what follows is the part of the programme that is written down somewhere a third party can check.
| Rule | What it says | Source |
|---|---|---|
| The four structures | A grant is never repaid. A forgivable second is forgiven over a term and repaid in full if you leave early. A deferred second requires no monthly payment but is repaid on sale, refinance or payoff. An amortising second is repaid monthly from closing. | Programme documents — the structure is stated in the second mortgage note |
| Who runs the programmes | State housing finance agencies, county and municipal governments, some employers, and some lenders. HUD maintains a directory of state and local homebuying assistance programmes. | HUD, state and local homebuying programmes directory |
| Source restrictions on an FHA loan | The full 3.5% minimum required investment may come from an approved assistance programme or an eligible gift, but it may not originate, directly or indirectly, from the seller, the builder, the agent or anyone else with an interest in the sale. | 12 U.S.C. 1709(b)(9)(C); HUD Handbook 4000.1, II.A.4 |
| Recapture | Forgivable and deferred seconds are secured by a recorded lien and repaid on sale, refinance, or a move-out before the forgiveness term has run. The trigger events are in the second mortgage note. | Programme documents |
| Subordination | Whether the programme will subordinate its lien to a new first mortgage on a refinance is set by the programme, not by your lender. Some will not, which makes a later refinance conditional on repaying the assistance. | Programme guidelines |
| Mortgage Credit Certificates | Separate from assistance, some state agencies issue an MCC, a federal income tax credit for a portion of the mortgage interest paid each year, available for as long as the loan is held and the home occupied. | 26 U.S.C. 25 |
| Homebuyer education | Most programmes require a course from a HUD-approved housing counselling agency, and the certificate must be in the file before closing. | Programme guidelines; 24 CFR Part 214 |
Floor one
Who it fits
The usual guidelines. Every one of them is a starting point that an underwriter reads against the whole file, so treat a line you miss as a conversation rather than a closed door.
- Income at or below the programme's limit, which is usually set by household size and county
- A purchase price at or below the programme's cap
- First-time buyer status on many but not all programmes — commonly defined as not having owned a home in three years
- The property must be your principal residence, and often within a designated area
- A minimum credit score, and a first mortgage from a lender approved by the programme
- Completion of homebuyer education, usually with a HUD-approved counselling agency
Ground floor
How it goes, top to bottom
Start at the state housing finance agency, not at a lender
The state agency's programmes are usually the largest, the cheapest and the best documented, and its website lists which lenders can originate them. In Wisconsin that agency is WHEDA. Then check the county and the city.
Identify the structure before the amount
Grant, forgivable, deferred or amortising. Ask that question first. A smaller grant is often worth more than a larger deferred second.
Ask the subordination question in writing
Will the programme subordinate to a future refinance, and on what conditions? The answer determines whether you can ever refinance without repaying the assistance.
Complete the homebuyer education early
It is a condition of most programmes and the certificate takes time to issue. Doing it at the start removes a common last-minute delay.
Underwriting, then two closings in one
The first mortgage and the assistance are approved separately and close together. Read both sets of documents — the second lien's note is where the recapture terms live.
The four structures, on what each one actually costs
| Feature | Grant | Forgivable second | Deferred second | Amortising second |
|---|---|---|---|---|
| What you repay | Nothing | Nothing, once the forgiveness term is served | The principal, on sale, refinance or payoff | Principal and interest, monthly, from closing |
| Lien recorded | Usually none | Yes | Yes | Yes |
| If you sell in year three of a five-year term | Nothing owed | The unforgiven balance falls due | The balance falls due | The remaining balance falls due |
| Effect on your monthly payment | None | None | None | It adds a second payment |
| Effect on a future refinance | None | Blocked unless the programme subordinates or you repay | Blocked unless the programme subordinates or you repay | Blocked unless the programme subordinates or you repay |
| The thing to check first | Whether it is reported as taxable income to you | The length of the forgiveness term | Whether the programme will subordinate | The interest rate on the second |
This table scrolls sideways on a narrow screen.
Questions this raises
Do I have to pay down payment assistance back?
It depends entirely on the structure, which is why that is the first question to ask. A true grant is never repaid. A forgivable second is forgiven over a stated term and repaid in full if you sell, refinance or move out before it has run. A deferred second is always repaid, just not monthly — it falls due on sale, refinance or payoff. An amortising second is repaid every month from closing. Programmes describe all four as assistance.
Will assistance stop me refinancing later?
It can. The assistance is usually secured by a second lien, and refinancing the first mortgage requires the programme either to subordinate — agree to stay behind the new first mortgage — or to be repaid. Some programmes subordinate readily, some on conditions, and some not at all. Ask for the subordination policy in writing before you accept the assistance, because by the time you want to refinance the answer is fixed.
Where do I find programmes near me?
Start with your state housing finance agency, which usually runs the largest and best-documented programmes and publishes a list of participating lenders. Then check the county and the city, which often have their own smaller funds. HUD maintains a directory of state and local homebuying assistance programmes. Employer programmes and lender-specific grants exist too and are worth asking about, but the public agencies are the sensible first stop.
Is the assistance taxable?
It depends on the structure and on how the programme reports it, and it is a question for a tax adviser rather than a lender. A forgivable second that is cancelled after the term has run raises different questions from an outright grant at closing. The reason to raise it early is that the answer can affect a year in which you were not expecting it, so ask the programme how it reports the assistance before you accept it.
Put your own numbers through it
How much house is defensible? The affordability page prints the rule it followed beside the answer, and the address bar carries your inputs so the link you send is the answer you saw.
Or read every programme side by side.