What is Down Payment Assistance (DPA)?

 

With the home prices have been increasing significantly in recent years, it becomes literally out of reach for many first-time homebuyers or low- and moderate-income borrowers.  One of the challenges for these people is not having tens of thousands of dollars on hand for the upfront down payment.  However, the Down Payment Assistance can provide a solution for this challenge. It is funds that will be used toward the down payment for purchasing real property.  It comes in the form of grants, loans, or other programs.  This type of assistance is often called a subordinate loan, or a silent second loan which means its payments are deferred until your property is sold, refinanced, or paid in full.  

 

Types of Down Payment Assistance Loans

 

Typically, there are several types of down payment assistance, such as:

 

Grants

 

Grant is a valuable form for the down payment assistance.  That is because the recipient is not obligated to repay the grant.  There are some programs that are labeled grants may actually create a second lien on your property.  Therefore, it is important to read the terms of the down payment assitstance agreement carefully.  

 

Forgivable Second Mortgage (0% Interest)

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This is also known as soft second mortgage that you will not have to pay back as long as you live in the home for a required number of years.  Otherwise, you will likely be required to pay back the loan if you move or sell your home prior to the forgiveness period ends

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Deferred-Payment Mortgage (0% Interest)

 

This is a second mortgage with a deferred payment.  Specifically, loan payments will not kick in until you move, refinance your home, or finish paying your first mortgage.  People should not be confused this mortgage with the "forgivable second mortgage" as this is never forgiven.  

 

Low-Interest Loan

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A Low-interest loan is a second mortgage that you can use funds from this loan to cover your down payment.  The advantage of this loan is it comes with low interest rates.  You will have to repay this loan in installments, usually monthly.  

 

Matched Savings Program

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A Matched Savings Programs, or Individual Development Accounts (IDA) is program where you can deposit money into a designated account, and your funds are matched by the governing institution, such as bank, government agency, or community organization.

 

What are the criteria to qualify for down payment assistance?

 

• First-time home buyers.  

• A minimum credit score.  (Each program has its own minimum credit score requirement).

• An income limit that does not exceed the lender's income requirements as well as DPA  program guidelines. (Income Limits | HUD USER)

• You need to complete a homebuyer education course, depending on your state and local program.

• You must live in the home for a certain required number of years.