Down Payment Assistance: How It Works, Where to Find It

If you want to become a homeowner but don’t have enough cash for a down payment, a down payment assistance program might be able to help. Assistance is available to help with closing costs, too.

Here’s a beginner’s guide to common sources of down payment and closing cost assistance and how to see if you qualify.

» MORE: See closing costs, mortgage fees explained

Most states and many counties and cities offer grants and no-interest loans to help home buyers pay for down payments and closing costs. Down payment assistance most commonly comes through state housing finance agencies. It can also come from cities, counties, nonprofits, lenders and even some employers.

Often, down payment and closing cost assistance is offered in combination with mortgages geared to first-time home buyers. If you qualify, you can really stretch your dollar when you combine first-time home buyer benefits from multiple programs.

» MORE: How much house can you afford?

The types of closing cost and down payment assistance vary by program. Common forms of assistance include:

• Grants. Some programs provide an outright gift of money that you don’t have to pay back.

• Zero-interest, forgivable loans. The loans are forgiven over a certain period, such as five years. The money doesn’t have to be repaid as long as the borrower still owns and lives in the home after the period is over.

• Zero-interest, deferred-payment loans. Terms and conditions vary, but generally no payments on the down-payment and closing-costs loan are due until the home is sold, the mortgage is refinanced or the mortgage reaches the end of the term.

• Low-interest loans. The loans must be repaid over a certain period, such as 10 years. They make homeownership more attainable by spreading the down payment and closing costs over multiple years.

» MORE: What down payment is required?

Many down payment assistance programs are geared to first-time home buyers. Some local programs target certain groups, such as teachers, police officers, emergency responders or public servants, such as government employees.

But previous homeowners can get assistance, too: More than a third, 39%, of homeownership programs are open to eligible repeat buyers, according to Down Payment Resource, a company that tracks more than 2,000 such programs.

Requirements for down payment assistance programs vary. Commonly, you must do at least a few of the following:

• Take a home-buyer education course.

• Meet income limits. Many programs are geared to low- and moderate-income residents, so a borrower’s household income must be below a certain threshold.

• Purchase in an approved location.

• Stay below the maximum home purchase price, which is usually a percentage of an area’s median home purchase price.

• Contribute some of your own money toward the purchase.

» MORE: Must-know tips: Buying a home for the first time

Some places you can check for programs include:

• Your state housing finance authority. Visit NerdWallet's first-time home buyer programs page and select your state to see a description of programs where you live.

• Your city and county governments. Many cities and counties offer down payment assistance and other programs to boost homeownership.

• The U.S. Department of Housing and Urban Development. Visit the local homebuying programs page on HUD's website and select your state to see a list of programs.

• HUD-approved housing counselors. The Consumer Financial Protection Bureau has a tool to find a housing counselor in your area.

• Down Payment Resource. The company offers a tool on its website to find home buyer programs in your area. The online form requires you to provide contact information.

» MORE: Try NerdWallet’s down payment calculator

Visit the website of the local government agency or organization administering the program to learn about down payment assistance requirements and to get a list of approved mortgage lenders.

Apply for a mortgage with a lender approved to work with the grant program. Local agencies may be able to recommend loan officers who have experience helping people apply for the grants they administer.

» MORE: See NerdWallet’s picks for best mortgage lenders for first-time home buyers