Wishing you could buy a home? It can be challenging to save enough for a down payment, given how much houses now cost.
But many people don’t realize there are myriad programs that offer grants or loans to help home buyers come up with the necessary funds. “There are tons of programs to assist them,” said Deatra Kemp, an advocate for first-time home buyers in Milwaukee.
The programs can ease some of the daunting numbers behind buying a house. The median price of a home has risen to more than $400,000, meaning the once-traditional 20 percent down payment — an amount paid in cash toward the purchase of a home, in addition to the amount borrowed for a mortgage — would be about $80,000. And typical house prices are significantly higher in some parts of the country.
Even 5 to 10 percent down is a stretch because rising rents have made it harder for people to save to buy a home, said Teig Whaley-Smith, chief alliance executive with the Community Development Alliance, a nonprofit group in Milwaukee that promotes affordable homeownership as a path to racial equity. “For working families,” he said, “that’s next to impossible.”
Plus, increasing mortgage interest rates, which drive up monthly costs, don’t help. This week, rates for a 30-year fixed-rate mortgage rose above 7 percent — to an average of 7.04 percent — for the first time since May, according to Freddie Mac, the federally backed mortgage finance giant.
Sonu Mittal, senior vice president and head of the single-family acquisitions division at Freddie Mac, said that outside of high prices and interest rates, which consumers can’t control, raising a down payment “continues to be the No. 1 barrier to homeownership.”
But down-payment assistance options can help buyers come up with the necessary cash. When combined with loan programs that allow buyers to put less money down — as little as 3 percent of the home’s purchase price, in some cases — the help can make buying a home a reality.
It’s also possible in some cases to put no money down. Two federal government programs offer zero percent down-payment loans to borrowers who meet specific criteria. The Department of Veterans Affairs offers full financing for veterans and those on active military duty, and the Department of Agriculture guarantees zero percent down-payment loans in rural areas.
“Twenty percent down is a myth,” Ms. Kemp said. The typical down payment for first-time buyers in 2024 was 9 percent, according to the National Association of Realtors. Yet the notion that higher down payments are needed persists. As a result, many people of modest means don’t even consider the notion of owning a home, said Ms. Kemp, vice president of programs at Acts Housing, a nonprofit group that provides financial coaching and other services to help renters become homeowners.
Still, finding the right assistance program isn’t easy. A 2023 report from the Urban Institute, a nonprofit research group, identified more than 1,600 government programs across the country designed to help with down payments. Some are offered by the federal government, others by state housing finance agencies or county and local governments. Community-funded organizations and even commercial lenders may also offer help.
Most, but not all, programs serve first-time buyers, and most set income limits for borrowers — typically based on the median income in the home’s area. The dizzying assortment of programs, which have varying criteria and geographic restrictions, can make it challenging to identify and apply for available help.
“Home buyers don’t know where to start,” said Ashley Moore, community lending manager with Chase Home Lending in Houston.
Some programs offer grants, which don’t need to be repaid, but most offer help in the form of a low- or no-interest second mortgage, meaning there is additional debt on the home. Payments on the loans, however, are often deferred, meaning you don’t have to start paying them back right away, and the loans may be forgiven if you remain in the home for a certain period of time — often five years.
Jung Hyun Choi, principal research associate with the Urban Institute’s housing finance policy center, said borrowers may combine benefits of several different down-payment programs, a practice sometimes called “stacking,” to come up with the necessary funds. But it can take time and effort to find and apply for various programs. “It’s pretty complicated,” she said, and can drag out the buying process.
Groups like Acts Housing aim to help borrowers identify the right programs and often find that borrowers are eligible for more than one. “We love to stack,” Ms. Kemp said.
Acts Housing recently worked with a buyer who was able to get $19,500 in down-payment assistance from a combination of grants from federal and private lenders and a city program, she said. The buyer put down less than $700 out of pocket at closing for a home in Milwaukee.
“Get all the grants you deserve,” Ms. Kemp said. “Don’t leave any money on the table.”
The borrower, Latoya Myrick, 44, who works in community services, said the assistance had enabled her to buy a duplex for about $200,000, realizing a longtime goal of owning her own home. She had tried before, she said, but didn’t have enough for a down payment. She closed on Jan. 6 and will soon move in. “I’m so grateful.”
Other resources are emerging to help home buyers find down-payment assistance. Freddie Mac in late 2023 began offering a free online search tool, DPA One, aimed at helping lenders and housing counselors match eligible borrowers with down-payment help.
“Loan officers may not even know there is a program available,” Mr. Mittal said. “We want to make sure we don’t miss those opportunities.”
It’s too soon to say how many homes have been purchased because of the new offering, Mr. Mittal said, but the tool is gaining traction. About 7,000 loan officers use the tool, which now has information on about 800 programs across 50 states and the District of Columbia. (Home buyers can try DPA One, but it’s mainly intended for professionals.)
Another option is Down Payment Resource, an online search tool. Borrowers enter details about themselves and the type of home they want and can get information about programs for which they may be eligible.
You can also contact your state housing finance authority or work with a housing counseling agency certified by the federal Department of Housing and Urban Development to learn about available programs. You can search on the HUD website for agencies in your area.
Here are questions and answers about mortgage down payments:
Will using a down-payment assistance program cause the interest rate on my loan to be higher?
Some predatory lenders may charge a higher rate to borrowers using assistance programs, Ms. Kemp said. When that happens, counselors at certified housing agencies can work with buyers to find lenders who won’t penalize borrowers using down-payment help, she said.
Can I use a family gift to help with a down payment?
Lenders may allow gifts from close family members to be included as part of a down payment. In 2024, 8 percent of home buyers (and 21 percent of first-time buyers) said they had used a gift from a relative or friend, according to the National Association of Realtors. You may need to provide a letter signed by the donor to document that the money doesn’t need to be repaid, according to the credit bureau Experian.
Do private lenders offer assistance with down payments?
Some do. Chase, for instance, offers grants of up to $7,500 in eligible areas, including federally identified neighborhoods with majority Black, Hispanic or Latino populations, that can be used toward a down payment or to reduce a home loan’s interest rate or closing costs. You can check online for available programs.