Young couple standing in front of their house.

Down Payment Assistance: Your Complete Guide

Here are eight down payment assistance programs that you might be able to use as a first-time home buyer.

1. Chenoa Fund

One nationwide (except in New York) source of down payment assistance is the Chenoa Fund. The Chenoa Fund is an affordable housing program administered by CBC Mortgage Agency (CBCMA), a federally chartered government entity.

The Chenoa Fund provides up to 3.5% down payment assistance, or DPA. Conveniently enough, that’s the down payment you need for an FHA loan. If you have a FICO® Score of 620 or higher and a DTI of 45% or less, you’ll get a second mortgage with no interest and no payments. If your income is less than 115% of your area’s median income, and you make your mortgage payment on time for 36 months, the mortgage is forgiven. If you make more than 115% of your area’s median income, the DPA must be repaid.

If you make a late mortgage payment, you’ll be given a second chance at loan forgiveness. You get to reset the period, and the mortgage will still be forgiven if you make timely payments for the next 36 months.

2. Community Seconds

Community Seconds is a Fannie Mae-approved (more on Fannie Mae below) second mortgage that allows home buyers to use the funds available from state and local governments as well as housing nonprofits to put together a down payment, get help with closing costs and even complete minor renovations. Contact your local HUD office to learn more about the down payment and closing cost assistance available where you live.

3. HUD Home Programs

When it comes to housing matters, the U.S. Department of Housing and Urban Development, or HUD, reigns supreme.

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HUD directly assists Americans who need housing help. It encourages responsible homeownership through its programs. HUD sells foreclosed homes and sponsors programs, discussed below, that make it easier for a variety of low- and moderate-income people to buy homes.

HUD houses the Federal Housing Administration, or FHA. The FHA funds mortgages made by private lenders according to its rules. In addition to HUD and the FHA, the Veteran’s Administration, or VA, and the US Department of Agriculture, or USDA, offer loan programs that provide guarantees through private lenders.

This option is not a form of down payment assistance per se, but a way to buy a discounted home, with only 3.5% down (if you qualify for an FHA mortgage; more on that below).

If you’re looking for a bargain, consider buying a HUD house. HUD houses are homes that were last purchased with an FHA loan. Because of foreclosure, the government now owns these properties, and HUD manages them until they are sold. HUD houses are purchased “as-is.” That means that the government makes no warranties and will not undertake repairs.

Potential buyers are strongly encouraged to perform a thorough home inspection so that they know exactly what they are getting into. If you buy a HUD home with an FHA mortgage (below), you may be able to finance renovations with an FHA 203k loan and roll both loans into one convenient monthly payment.

HUD also administers special home buying programs that in some cases require no down payment, and in others offers homes at deep discounts, through such programs as The Good Neighbor Next Door, Section 8 Housing Choice Voucher Program and Section 184 Indian Home Loan Guarantee Program. You can learn more about eligibility requirements for each of these programs directly from HUD.

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4. Government-Sponsored Entities

Fannie Mae and Freddie Mac are government-sponsored entities that work to purchase loans after origination to keep lenders liquid, and to encourage low- and middle-income families to become homeowners.

Lenders must meet Freddie and Fannie’s requirements to be able to sell them their mortgages so that they have the liquidity to issue future mortgages. Fannie Mae’s participation in the Community Seconds program helps lenders originate primary mortgages with confidence, because Fannie Mae is promising not to avoid purchasing their loans due to the subordinate mortgage.

Fannie Mae funds the HomeReady mortgage, while Freddie Mac funds the Home Possible mortgage program. Their backing makes it possible to get a mortgage loan with as little as 3% down payment.

5. HomePath Homes

If you are a first-time home buyer, you might want to consider a HomePath home. These are Fannie Mae-owned homes offered to the public at a discount after the previous owner defaulted on a Fannie Mae-owned mortgage.

There are lots of great reasons to consider a HomePath Home for your first home purchase, including low down payments and the HomeStyle renovation loan eligibility. But none is more enticing than the closing cost assistance – up to 3% of the home’s purchase price – which is available if you take the online HomeReady home ownership course and ultimately buy a HomePath home. This means that if you purchase a HomePath home for $200,000, you will get a credit for up to $6,000 in closing costs.

6. FHA Loans

Loans insured by government agencies – such as VA or FHA loans – aren’t technically examples of down payment assistance programs. However, these government-backed loans usually allow buyers to provide lower down payments, even with slightly shaky credit. This can be of help to first-time buyers worried about coming up with thousands of dollars at closing.

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FHA loans are insured by the Federal Housing Administration, a division of HUD. With an FHA loan, you can buy a home with as little as 3.5% down if your credit score is 580 or higher. If you have a 10% down payment available, you may be approved with a credit score as low as 500.

7. USDA Loans

USDA loans are loans for people who are looking to buy homes in rural or suburban areas. To qualify, your home must be in a zone that the USDA deems “adequately rural.” You also cannot earn more than 115% of your county’s median income, and your property must not be a working farm. With a USDA loan, you can buy a home with no down payment.

8. VA Loans

VA loans are home loans for current members of the Armed Forces, veterans and certain spouses of deceased service members. You must meet service requirements before you can get a VA loan. Like a USDA loan, a VA loan allows you to buy a home with no money down.