Down Payment Assistance Programs: A Complete Guide for First Time Homebuyers

Saving for a down payment is one of the biggest challenges faced by first-time homebuyers. Fortunately, there are various down payment assistance programs designed to help reduce upfront costs. From grants to forgivable loans, these programs make buying your first home more affordable. This complete guide breaks down the best down payment assistance programs available, who qualifies, and how to apply to turn your dream of homeownership into reality.

What are Down Payment Assistance Programs?

Down payment assistance programs are designed to help first-time homebuyers and others struggling to save for a down payment by offering financial support. These programs can cover part or all of the down payment required to purchase a home, making homeownership more accessible for those who need it most.

Down payment assistance can come in various forms, including grants, low-interest loans, and deferred-payment loans. These funds are often provided by government agencies, nonprofit organizations, or lenders. They are designed to help reduce the financial burden of saving for a down payment and enable buyers to enter the housing market sooner.

These programs can make a significant difference, allowing you to keep your savings intact for other expenses while helping you secure a home. Next, we’ll guide you through how to determine your eligibility for these programs and explore the key factors to consider when choosing the right option for your needs.

How to Evaluate Your Eligibility for Down Payment Assistance

Down payment assistance programs can significantly ease the burden of purchasing your first home, but it’s essential to know if you qualify before you start the application process. To qualify for down payment assistance, you must meet certain eligibility criteria. Follow these steps to evaluate if you're eligible for financial help with a down payment:

1. Check Your Income Limits

Most down payment assistance programs have income limits based on the area you plan to purchase in. These limits can vary widely by location and the specific program. Typically, they are designed to assist buyers who may not have the financial means to cover a large down payment.

Tip: Many programs also take into account household size when determining income limits. Make sure to gather accurate information about your income and household size to assess eligibility.

2. Review Your Credit Score Requirements

Your credit score is one of the most important factors that determine your eligibility for down payment assistance. A credit score of 580 or higher is typically required to qualify.

Tip: If your score is below the minimum for a particular program, you may want to take some time to improve your score by speaking with us here at AUH to use our Credit Upgrade system.*

3. Consider Your Debt-to-Income (DTI) Ratio

Your debt-to-income ratio (DTI) is another key factor that lenders use to determine your ability to repay a mortgage. Most down payment assistance programs have specific DTI limits, typically ranging from 40% to 50%. If your DTI ratio is too high, you may not be eligible for certain programs.

Tip: If your DTI is high, consider paying down some debts before applying to improve your chances of qualifying for assistance.

4. Research Local and State-Specific Programs

Eligibility can also depend on where you are buying. Many states, counties, and cities offer their own down payment assistance programs with unique criteria. It’s important to research programs available in your area and review the specific requirements for each one.

Tip: Reach out to a local lender/broker who is familiar with the programs in your area. They can help guide you to the right assistance options based on your situation.

5. Check for Special Programs for First-Time Buyers

Many down payment assistance programs are specifically designed for first-time homebuyers. These programs often have more relaxed eligibility requirements and lower income limits to help buyers who are purchasing their first property.

Tip: Keep in mind that some programs may only apply to first-time buyers, while others may be available to buyers who haven’t owned a home in the past 3 years.

Understanding the Different Types of Down Payment Assistance Programs

There are several types of down payment assistance programs available for first-time homebuyers to reduce upfront costs. Understanding these options can help you identify which one is the best fit for your financial situation. Here’s a breakdown of the most common types:

1. Down Payment Grants

Down payment grants are funds provided by government or nonprofit organizations that do not need to be repaid. These grants are typically offered to first-time homebuyers who meet certain income and credit criteria. Grants can significantly reduce the amount you need to save for a down payment, making homeownership more accessible.

Tip: Grants are often available to buyers in specific locations or those with lower income, so make sure to check the eligibility requirements for your area.

2. Forgivable Loans

Forgivable loans are another popular form of down payment assistance. These loans are offered at little or no interest, and the best part is that they’re forgiven after a certain period of time, usually 5 to 10 years. As long as you stay in the home for the required period, the loan is essentially erased.

Tip: Be aware that if you sell or refinance your home before the loan is forgiven, you may have to repay the loan in full.

3. Deferred Payment Loans

Deferred payment loans allow you to borrow the down payment funds with no immediate repayment requirement. Repayment is usually due when you sell the home, refinance, or pay off your mortgage. While these loans typically have low interest rates, they don’t offer the same forgiveness as grants or forgivable loans.

Tip: Deferred payment loans can be a great option if you need help with a down payment but plan to stay in the home long-term.

4. Second Mortgages

Some programs offer a second mortgage to help with down payment costs. These loans typically have lower interest rates and may be repaid over time or upon the sale of the home. The second mortgage is separate from your primary mortgage but can be a helpful way to cover additional homeownership expenses.

Tip: Check the terms of a second mortgage before committing, as these loans will add to your overall debt load.

5. Employer Assistance Programs

Some employers offer down payment assistance programs to help employees purchase homes. These programs may provide grants, loans, or other benefits to help with the down payment.

Tip: If your employer offers down payment assistance, make sure to inquire about any eligibility requirements and the process for applying.

How to Apply for Down Payment Assistance Programs

Once you find a down payment assistance program you're eligible for and determined your eligibility, the next step is preparing and submitting your application. Here’s how to streamline the process:

1. Gather Your Documents

Most down payment assistance programs require similar documents to what you’d submit when applying for a mortgage. This typically includes documents like Proof of Income, (recent pay stubs, W-2s, or tax returns), Credit history and scores, Bank statements to verify savings, Proof of employment, and ID and residency verification.

Tip: For a complete checklist and more details on how to organize these documents, check out our guide on Essential Steps to Prepare Before Applying for Your First Home Loan.* It’ll walk you through gathering and preparing everything you need.

2. Complete the Application

Most lenders and brokers now offer a streamlined online application process, making it faster and more convenient to apply for down payment assistance programs. Be sure to fill out all sections accurately and thoroughly, as incomplete or incorrect information can cause delays. If you need help, your lender can guide you through the process to ensure everything is submitted correctly.

3. Speak with Your Lender or Broker

If you’re unsure how to proceed, speaking with your lender or broker experienced in down payment assistance programs can streamline the process. They’ll help you come up with a list of potential programs and ensure you are on the right track to meet eligibility requirements and submit a strong application. They can also guide you through the necessary steps to maximize your chances of approval.

4.Stay in Close Contact with Your Lender or Broker

After submitting your application, your lender or broker will often be your main point of contact for any follow-ups or additional documentation requests from the program provider. Stay in regular communication to ensure you're promptly providing any necessary information and avoid delays in the approval process.

Down Payment Assistance Programs We Offer at AUH

At American United Homes (AUH), we understand that saving for a down payment can be one of the biggest hurdles for first-time homebuyers. That’s why we offer several down payment assistance programs to make homeownership more affordable including:

ONE+ Program *from Rocket Pro

-Eligibility: Available for loans under $350,000 that meet your counties income limit criteria.

-How It Works: You only need to put down 1% of the purchase price, and Rocket Mortgage will cover the remaining 2% as a forgivable grant.

-Benefit: This program is a completely forgivable grant, meaning you don’t have to repay the down payment assistance as long as you meet the program’s terms.

-Best For: First-time homebuyers looking for low down payment options.

Empowered DPA Program

-Eligibility: This program is available for FHA loans only and has eligibility criteria based on income, first-time homebuyer status, underserved areas, or employment in qualifying fields like military, first responders, and medical personnel.

-How It Works: Depending on your eligibility, this program will cover either 2% or the full 3.5% down payment required for an FHA loan.

-Benefit: This program is a completely forgivable grant, meaning you don’t have to repay the down payment assistance as long as you meet the program’s terms.

-Best For: First-time homebuyers, military personnel, and essential workers.

Purchase Plus Program

-Eligibility: At least one applicant must be a first-time homebuyer and live in an eligible underserved area.

-How It Works: You will receive $5,250 to use for down payment, closing costs, or a combination of both.

-Benefit: This program offers financial assistance to those in underserved areas.

-Best For: First-time homebuyers who live in eligible underserved areas and need help with down payment or closing costs.

CalHFA Program (California Housing Finance Agency)

-Eligibility: Available for both Conventional and FHA loans, provided the home is located in California and meets income limits.

-How It Works: This program wraps up the down payment (either 3% or 3.5%) into a silent second loan with 0% interest and deferred payments.

-Benefit: You won’t have to make any payments on the second loan until the home is sold or refinanced, making it easier to manage your monthly budget.

-Best For: First-time homebuyers in California who need assistance with their down payment.

Make Your Homeownership Dream a Reality

Down payment assistance programs can be a game-changer for first-time homebuyers, helping you overcome one of the biggest financial hurdles on your path to homeownership. With various options available, from grants to forgivable loans, there’s a program to fit your needs. By understanding your eligibility and the different types of assistance available, you can take confident steps toward securing your new home.

At American United Homes (AUH), we’re here to guide you through the process and help you access the down payment assistance programs that best suit your financial situation. Whether you're interested in our ONE+ Program through Rocket Pro, the Empowered DPA Program, or any other available options, we're committed to making your dream of homeownership a reality.

Ready to get started? Contact us today to learn more about how we can help you with down payment assistance and explore your options. Our team is here to answer any questions and support you through every step of the home-buying process.