A down payment is the portion of a home’s purchase price a buyer pays upfront as part of the homebuying process. Down payments vary by type of loan and lender but often range anywhere from 3-20% of the property's total purchase price. Down payments can be a significant obstacle for those looking to buy a home. That’s where down payment assistance programs (DPAs) can help.

What is Down Payment Assistance?

Down payment assistance programs are designed to help you manage the initial costs of buying a home, potentially reducing the amount you need to contribute upfront. These funds are often income-based and can be accessed through state or local government programs and nonprofit organizations.

Depending on the specific program, you might be eligible to receive loans or grants to cover part or all of your down payment and closing costs. Typically, DPA programs have specific eligibility criteria. Borrowers must often secure a mortgage with a participating lender to benefit from such programs.

Who is Eligible for Down Payment Assistance?

Many DPA programs target first-time homebuyers and usually require the property to be used as the primary residence. Some programs may also require the completion of a homebuying education course. Other common eligibility criteria may include:

• Income
• Credit Score
• Type of Loan
• Property Location
• Purchase Price

If you are already working with a lender, inquire about the availability of DPA options.

Types of Down Payment Assistance

Grants

Grants are a form of DPA that do not need to be repaid. Government agencies, nonprofit organizations or private lenders often provide them. Grants are typically aimed at first-time homebuyers or those with low- to moderate-incomes. The primary advantage of grants is that they reduce the upfront costs of purchasing a home without adding to a buyer’s debt burden.

Forgivable Loans

Forgivable loans are loans that do not need to be repaid if certain conditions are met. These conditions often include living in the home for a specified period, such as five to ten years. If the homeowner meets the requirements, the loan is forgiven.

Low-interest, No-interest and Deferred Loans

Low-interest loans offer reduced interest rates compared to standard mortgage loans. The lower interest rate helps to make monthly payments more affordable, easing the financial burden on the homebuyer.

No-interest loans do not accrue interest. The borrower only repays the principal amount, making repayment easier without the added cost of interest.

Deferred loans only require repayment once a specific event occurs, such as the sale of the home, mortgage refinancing or after a set number of years. This type of loan allows homebuyers to delay repayment, providing financial flexibility during the initial years of homeownership.

Benefits of Down Payment Assistance

• Increased Affordability

  DPA programs make homeownership more accessible by reducing the amount of upfront cash needed.

• Financial Flexibility

  By lowering initial costs, these programs allow homebuyers to allocate their savings toward other home-related or life expenses.

• Encourages Homeownership

  These programs are especially beneficial for first-time homebuyers, helping them achieve the dream of owning a home that can be a wealth-generating asset for many years.

The Bottom Line

Down payment assistance programs are a valuable resource for those looking to buy a home but struggling with the initial costs. By understanding the types of assistance available and the application process, you can take advantage of these programs to help make homeownership a reality.

If you’re interested in learning about what down payment assistance programs you may qualify for, Cadence Bank can help. We’re the Home Loan Experts. Contact a lender in your area to get started today.

Sources:
https://money.usnews.com/loans/mortgages/articles/how-to-get-down-payment-assistance-for-a-mortgage
https://www.cnbc.com/select/what-is-down-payment-assistance
https://www.forbes.com/advisor/mortgages/down-payment-assistance-by-state

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.