First-Time Buyers

Down Payment Assistance Explained: Grants, Second Loans and Catches

By Aritz Boveda · Updated October 21, 2026
Fact-checked against primary sources on October 21, 2026

Down payment assistance (DPA) is money from a state, city, county or nonprofit program that helps cover your down payment or closing costs. It comes as a grant you don’t repay, a second loan that’s forgiven over time, a second loan you repay later or monthly, or a match on your own savings. Most programs target first-time and low- to moderate-income buyers, and the most important detail is not the amount: it’s what happens to the money if you sell or refinance.

The four main types

A fifth option, matched savings, works differently: you save on a schedule and a program matches your deposits.

Grants. Freddie Mac describes grants as funds you don’t have to pay back as long as you own and occupy the home for a certain period.

Forgivable loans. These are recorded as a second mortgage, usually at 0% interest with no monthly payment. A share is forgiven each year you stay. A common structure, used in HUD housing counselor training materials, forgives 20% a year over five years.

Deferred loans. Also a second mortgage, often at low or zero interest, with no payments until a trigger event. Nothing is forgiven, so you should plan for the full amount to come out of your sale or refinance proceeds.

Repayable loans. Some programs offer a second loan with a modest interest rate and a regular monthly payment. MassHousing in Massachusetts, for example, has offered its assistance as a 15-year, fixed-rate second mortgage; rates change, so check the current terms with the agency.

Matched savings (individual development accounts). Lower-income savers deposit money on a schedule and a local program matches it for a down payment and closing costs. Under the former federal Assets for Independence program, which no longer takes new funding, projects could match from $1 to $8 for each dollar saved. Availability depends on funding, so ask local nonprofits and your HFA what’s open now.

Who offers it

• State housing finance agencies (HFAs). Every state has one, as do Washington, D.C., Puerto Rico and the U.S. Virgin Islands. They often pair DPA with their own first mortgage programs and work through approved local lenders.
• Cities and counties. Many use federal and local housing funds for their own programs, sometimes with higher amounts or different eligibility than the state program.
• Nonprofits and housing counseling agencies. These run some programs directly and help buyers apply to others.

You can use DPA with several loan types. NCSHA reports that HUD has affirmed HFAs’ ability to provide down payment assistance with FHA loans, and Fannie Mae accepts subordinate financing such as Community Seconds that can be forgivable, repayable or deferred, generally up to a 105% combined loan-to-value. FHA does not allow assistance funded by the seller or another party with an interest in the sale. Your lender must approve the combination.

Typical eligibility rules

Programs set their own rules, but these are the usual ones:

• First-time homebuyer status. Many programs use HUD’s definition: someone who hasn’t owned a principal residence in the past three years. HUD’s guidance also counts a single parent or displaced homemaker whose only prior ownership was with a former spouse. So you may qualify even if you’ve owned before.
• Income limits. Usually tied to a percentage of the area median income (AMI). Freddie Mac’s Home Possible mortgage, for example, caps qualifying income at 80% of AMI, and some state DPA programs extend to higher incomes.
• Purchase price limits. Many programs cap the price of the home.
• Primary residence. You must live in the home.
• Homebuyer education. Many programs require a course, often from a HUD-approved housing counseling agency.
• Minimum credit score and your own contribution. Some programs require a minimum score or that you put in some of your own money.

HUD itself does not require FHA borrowers to be first-time buyers. The first-time rule, when it applies, comes from the assistance program.

Trade-offs and repayment triggers

Assistance has costs worth weighing:

• Trigger events. Second loans commonly become due if you sell, refinance, transfer the title, or stop living in the home. Refinancing to a lower rate can require paying the second off or getting the program to agree to stay in second position (called subordination). Ask about this before closing.
• Rate or fee differences. Programs tied to a specific first mortgage may come with a rate or fees that differ from what you’d get elsewhere. Compare the full Loan Estimate, not just the assistance amount.
• Less equity. Borrowing your down payment means you start with little or no equity. If prices dip and you need to sell, you could owe more than the home is worth.
• Recapture and resale rules. Some programs limit resale price or share in appreciation. Read the note and the deed restrictions.
• Timing. Approvals take time, and program funds can be limited. Tell your agent and lender early.

Worked example: three kinds of help on a $280,000 home

A buyer uses an FHA loan on a $280,000 home. The minimum down payment at 3.5% is $9,800. Three programs each offer $10,000. The terms here are illustrative.

Forgivable loan, 20% forgiven per year over five years. If the buyer sells after three full years, 60% has been forgiven:

Deferred loan at 0%, due on sale or refinance. After three years, the buyer owes the full $10,000 at closing on the sale.

Repayable loan at 3% over 15 years. The buyer pays about $69.06 a month on top of the first mortgage from day one.

Matched savings instead. A buyer who saves $100 a month for 24 months deposits $2,400. With a 2-to-1 match, the program adds $4,800, for $7,200 in total. That’s less than $10,000, but none of it is owed back.

The cheapest option depends on how long you’ll stay. For a buyer who expects to move within three years, the forgivable loan costs $4,000 at sale, the deferred loan costs $10,000, and the repayable loan costs about $2,486 in payments ($69.06 × 36 months) with part of the balance still owed.

How to find your state’s program

1. Start with your state HFA. NCSHA’s “Find a State Housing Finance Agency” page lists every state agency with a link to its site.
2. Check HUD’s local homebuying pages. HUD points buyers to its state-by-state pages at hud.gov/states for local and state programs that help with down payments and closing costs.
3. Talk to a HUD-approved housing counselor. The CFPB suggests this as a way to find programs near you, and counseling may also satisfy a program’s education requirement.
4. Ask lenders which programs they’re approved for. Not every lender participates in every HFA program.

Questions to ask before you accept

• Is this a grant or a loan? If a loan, is it forgivable, deferred or repayable?
• What exactly triggers repayment, and is the balance reduced over time?
• Will the program subordinate if I refinance later?
• Are there income, price, credit score or education requirements I haven’t met yet?
• How does the program change my first mortgage rate, fees and cash to close?

Get the answers in writing before you sign.