Down Payment Assistance Programs: What Homebuyers Need to Know

By Cinnamon Tyler, Mortgage Loan Originator | NMLS #69310
Updated August 16, 2026

Down Payment Assistance is something we get asked about on a regular basis. Almost everyone needs some amount of money for a down payment and/or closing costs, so how do you navigate the many DPA programs available? How do you qualify? And is it really “free money”?

We have a lot of thoughts on this, but let’s start with the basics.

As of earlier this year, there were 2,746 Down Payment Assistance programs nationwide. Each state and county may have additional options to consider, and there are often a handful of programs available in any given area. In some markets, buyers could have 10–20 options when you consider federal, state, county, city, and local programs.

These funds may be available to help with the down payment, closing costs, or a combination of both.

How Do You Qualify for Down Payment Assistance?

Qualifying for a Down Payment Assistance program goes hand in hand with qualifying for your mortgage.

The first thing you need to determine is whether the DPA program currently has funds available. Many programs temporarily close during the year as they wait to be funded again. We have pre-approved buyers expecting to receive DPA, only to have the program run out of money before they found a home to purchase. This can be frustrating and may delay your plans.

Next, you need to make sure you are working with a lender that participates in the DPA program you have chosen.

Each DPA has its own qualification requirements. Some programs control the interest rate on the first mortgage, and many are recorded as a second lien against the property. Because the DPA application and mortgage application often work together, finding a lender familiar with the specific program is very important.

You may wonder: Why would the lender care which DPA you use?

Down Payment Assistance programs may be available with Conventional, FHA, VA, and USDA financing, but not every DPA is compatible with every mortgage program.

For Conventional financing, the DPA must meet applicable Fannie Mae or Freddie Mac subordinate-financing requirements in addition to the lender’s requirements. FHA, VA, and USDA also have their own rules regarding acceptable sources of assistance.

The lender is responsible for making sure the DPA meets the requirements of the applicable mortgage program, which is one reason not every lender participates in every DPA.

Common DPA Qualification Requirements

Qualifications vary considerably from one program to another, but here are some common requirements you may encounter.

1. Credit Score Requirements

It is common to see a minimum credit score around 640, although the actual minimum varies by program.

Mortgage lenders currently obtain a mortgage tri-merge credit report, which reports credit information from Equifax, Experian, and TransUnion. Mortgage credit scores may be quite different from the scores consumers see through Credit Karma, credit card apps, and other consumer credit-monitoring services.

When three qualifying scores are available for an individual borrower, the lender generally looks at the middle score. When multiple borrowers are applying together, the applicable score used for qualification can depend on the mortgage and DPA program requirements.

This is why the credit score you see on your phone may not be the same score used to qualify you for a mortgage or Down Payment Assistance program.

2. Debt-to-Income Ratio Limits

DPA programs may also impose maximum debt-to-income ratios that are more restrictive than those allowed by the underlying mortgage program.

Many DPA programs have maximum debt ratios somewhere in the 30%–45% range, depending on the program and whether they are measuring the housing ratio, total debt ratio, or both.

The underlying mortgage program may allow a higher debt ratio based on its specific underwriting requirements. This means you could potentially qualify for the mortgage itself but still not qualify for a particular DPA.

3. Maximum Sales Price or Loan Amount

Many DPA programs establish maximum purchase prices and/or maximum loan amounts.

These limits are set by the individual program and can vary significantly based on location, household income, funding source, and the type of first mortgage being used.

4. Income Limits

Many Down Payment Assistance programs have household-income limits.

Some programs base those limits on a percentage of the Area Median Income, or AMI, for the county or metropolitan area. Other programs establish their own income limits.

Make sure you understand which household members and which types of income the DPA program considers when calculating eligibility.

5. First-Time Homebuyer Requirements

Many DPA programs are designed for first-time homebuyers.

A first-time homebuyer is commonly defined as someone who has not owned a primary residence during the previous three years. However, some DPA programs are also available to repeat buyers.

Never assume that you either do or do not qualify simply because you have owned a home before.

Can a DPA Affect Your Mortgage Interest Rate?

Yes.

A number of DPA programs control or publish the interest rate on the accompanying first mortgage rather than allowing the lender to price the loan at its normal market rate.

You may see an interest rate that is higher—or occasionally lower—than the rate you could receive without the DPA.

This is not always the case, but it is important to compare your financing options carefully.

Make sure you understand your:

• Interest rate
• Monthly mortgage payment
• Closing costs
• Cash required at closing
• DPA repayment requirements
• Long-term cost of the financing

Compare these numbers with and without the DPA so you can make an informed financial decision.

Is Down Payment Assistance Really “Free Money”?

This is where the structure of the DPA becomes extremely important.

Is it a grant? A forgivable second mortgage? A deferred-payment second mortgage? Or an amortizing second mortgage?

Two programs may each advertise $20,000 in assistance while having completely different long-term financial consequences.

Let’s look at the differences.

DPA Structure #1: Grant

Most true grants do not have to be repaid as long as you comply with the program’s requirements.

If the program has no repayment requirement and you meet all of its terms, you generally would not need to repay the money when you sell or refinance.

However, always verify the specific terms.

Some grant programs may require you to occupy the property as your primary residence for a certain period of time or meet other requirements to avoid repayment.

DPA Structure #2: Forgivable Second Mortgage

A forgivable second mortgage is different from a grant because the assistance is typically recorded as a lien against your property.

Some programs forgive a portion of the balance each year. Others forgive part of the assistance after a certain number of years. Some require you to remain in the home for a specified period before the entire balance is forgiven.

Understanding exactly how forgiveness works is extremely important.

Depending on the program, refinancing, selling the home, renting the property, transferring ownership, or no longer using the property as your primary residence could trigger repayment of some or all of the remaining balance.

DPA Structure #3: Deferred-Payment Second Mortgage

With a deferred-payment second mortgage, you generally do not make monthly payments on the DPA.

Instead, the lien remains against your property while you own and occupy the home. Repayment is typically deferred until a triggering event occurs.

Common triggering events can include:

• Selling the home
• Refinancing the first mortgage
• Paying off the first mortgage
• Transferring ownership
• No longer occupying the property as your primary residence

A deferred second can be very beneficial because there is no additional monthly payment affecting your household budget.

However, the buyer needs to remember that the money may still have to be repaid eventually unless the program specifically provides for forgiveness.

This structure can also create challenges if you want to refinance later. If the DPA requires repayment when you refinance and the DPA provider will not subordinate its lien, you may need to pay off the DPA before the refinance can be completed.

DPA Structure #4: Amortizing Second Mortgage

An amortizing second mortgage works more like a traditional loan.

You are borrowing the assistance and repaying it over time through a separate monthly payment. The DPA may have its own interest rate, repayment term, and monthly payment in addition to your first mortgage.

Because it creates an additional monthly obligation, the DPA payment may also affect how much mortgage you can qualify for.

What Happens If You Want to Sell or Refinance?

Now let’s assume you have found a DPA with funds available, you’re working with a participating lender, and you qualify for both the mortgage and the assistance.

The next question is: What are the long-term expectations of the DPA?

Not all Down Payment Assistance is “free money.”

A DPA can be a great option when it allows you to purchase a home without depleting your savings, but you need to consider your future plans.

If you anticipate remaining in your home for many years, some repayment restrictions may be less concerning.

However, if you are purchasing a starter home, expect to relocate within a few years, are military and could receive new orders, are buying during a high-interest-rate environment, or believe you may want to refinance relatively soon, the DPA terms become especially important.

Many repayable DPA programs require the outstanding assistance to be addressed when you sell or refinance.

Can You Refinance With Down Payment Assistance?

Let’s focus on refinancing.

Suppose you have a 6.50% interest rate and, a year or two later, mortgage rates fall to 5.50% or lower. You may want to refinance to reduce your monthly payment.

Your DPA could affect whether that refinance makes financial sense—or whether it can happen at all.

If the DPA is recorded as a second mortgage and requires repayment when you refinance, you may need enough equity or available funds to pay off:

• Your existing first mortgage
• The outstanding DPA balance
• Applicable refinance closing costs

If the home’s value has not increased enough, the numbers may not work without bringing additional money to closing.

Some DPA programs allow their lien to remain in place through a process called subordination.

What Is a Subordination?

When you purchase a home, your primary mortgage is generally recorded in first-lien position.

If your DPA is structured as a second mortgage, it is recorded behind the first mortgage as a junior lien.

When you refinance, your existing first mortgage is paid off and replaced with a new first mortgage. Without additional documentation, the existing DPA lien could move ahead of the newly recorded mortgage.

The new first-mortgage lender does not want its lien sitting behind the DPA.

That is where a subordination agreement comes into play.

The DPA provider agrees that its lien will remain in a junior position behind the new first mortgage.

For a subordination to work, both the DPA provider and the new mortgage lender must agree to the transaction. The DPA provider may charge a processing or subordination fee, and additional documentation may be required.

Both parties may want to review information such as:

• The new mortgage terms
• Current first-mortgage balance
• DPA balance
• Property value
• Loan-to-value ratio
• Combined loan-to-value ratio
• The homeowner’s continued eligibility under the DPA requirements

An appraisal may also be required to establish the property’s current value.

A DPA Refinance Example

For example, assume you purchase a $350,000 home using a $350,000 VA first mortgage and receive $20,000 through a DPA structured as a repayable second mortgage.

You would begin with approximately $370,000 in combined first- and second-mortgage debt.

After two years, the first mortgage balance might be approximately $341,900, leaving roughly $361,900 in combined mortgage debt before considering any other amounts due.

Now assume the property appraises for only $360,000.

The combined mortgage liens would exceed the property’s appraised value.

That could make refinancing difficult or prevent the new lender from accepting a subordination, depending on the mortgage program, DPA guidelines, loan-to-value requirements, and lender requirements.

This is why understanding your DPA before you purchase the home is so important.

What Happens to DPA When You Sell Your Home?

The answer depends entirely on the structure of the program.

Some forgivable DPA liens may be forgiven or released after a specified number of years. Other DPA loans remain outstanding until the property is sold, refinanced, transferred, or another repayment event occurs.

According to the National Association of Realtors, homeowners often remain in their homes for many years. Over time, mortgage principal reduction and potential appreciation may create enough equity to repay a DPA when the property is eventually sold.

However, circumstances do not always go according to plan.

If you need to sell after only a few years, you must have enough proceeds from the sale to pay off the existing first mortgage, any repayable DPA liens, and applicable selling expenses.

These repayment requirements can become particularly important if you need to sell or refinance sooner than expected because of:

• Relocation
• Military orders
• Divorce
• Death
• Changes in finances
• Employment changes
• An opportunity to obtain a substantially lower mortgage rate

Questions to Ask Before Accepting Down Payment Assistance

Before accepting a DPA program, make sure you understand exactly what you are agreeing to.

At a minimum, ask:

• Is this assistance a true grant or a second mortgage?
• Is the second mortgage forgivable, deferred, or amortizing?
• Does the DPA accrue interest?
• Is there a monthly payment?
• When does the DPA have to be repaid?
• What events trigger repayment?
• What happens if I sell the home?
• What happens if I refinance?
• Will the DPA provider allow the lien to subordinate?
• Is there a subordination or processing fee?
• Are there appraisal or loan-to-value requirements for subordination?
• If the DPA is forgivable, exactly how and when is it forgiven?
• Is forgiveness gradual or does it occur all at once after a specified period?
• What happens if I stop occupying the property as my primary residence?

The answers to these questions can help you determine whether a particular DPA makes sense for your short- and long-term plans.

Alternatives to Down Payment Assistance

DPA is not the only option available to buyers who need help with cash at closing.

Depending on your financial situation and the mortgage program, alternatives could include:

• Loan programs requiring 0% down
• Conventional programs requiring as little as 3% down
• Eligible gift funds from family members or other permitted donors
• A qualifying loan from a retirement account, such as a 401(k)
• Seller-paid closing costs
• Lender credits toward eligible closing costs

Seller credits and lender credits generally cannot be used to satisfy a required down payment, but they may help reduce eligible closing costs and prepaid expenses. Reducing those costs could decrease the amount of DPA you need.

Explore all of your available options before deciding.

Compare Your Mortgage With and Without DPA

Finally, compare the mortgage with and without Down Payment Assistance.

Don’t look only at how much money you’re receiving today.

Compare:

• Interest rate
• Monthly payment
• Cash required at closing
• Closing costs
• Second-mortgage payments, if applicable
• Repayment requirements
• Forgiveness terms
• Refinance restrictions
• Potential subordination requirements
• Long-term financing costs

The program offering the largest amount of assistance is not necessarily the program that provides the greatest financial benefit.

The goal should be to choose the financing structure that makes the most sense for your circumstances today and for the years ahead.

About the Author

Cinnamon Tyler has worked in residential mortgage lending since 1998, helping homebuyers and homeowners navigate their purchase and refinance options. With decades of mortgage lending experience, Cinnamon focuses on helping borrowers understand their financing choices so they can make informed decisions about homeownership.

Cinnamon is with Abaca Mortgage, licensed in Florida, Georgia, and Alabama. While Abaca Mortgage does not participate in every Down Payment Assistance program available, we are happy to help you explore your options and, when appropriate, guide you toward resources or connections for programs we do not offer.

At Abaca Mortgage, our goal is to provide you with the information and tools you need to determine the financing path that works best for you and your family.