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If you want to become a homeowner, but you don’t have enough cash for a down payment, a state or local down payment assistance program might be able to help.

 

Most states and many counties and cities offer grants and no-interest loans to help home buyers pay for down payments and closing costs.

 

How do they work?

The help comes through state housing finance agencies as well as cities, counties, nonprofits and even some employers. Often the programs are offered in combination with mortgages geared to first-time home buyers.

 

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.

 

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.

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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.

 

Who can get down payment assistance?

Most down payment assistance programs are geared to first-time home buyers. But more than a third, 38%, of homeownership programs are open to eligible repeat buyers, according to Down Payment Resource, a company that tracks more than 2,000 such programs, including those that offer down payment or closing cost assistance.

 

Even if a program has a first-time home buyer requirement, don’t count yourself out just because you've previously owned a home. The programs typically define a first-time buyer as one who hasn’t owned a home for the past three years.

 

Some local programs target certain groups, such as teachers, police officers, emergency responders or city employees.

 

Requirements for down payment assistance programs vary, but typically you must:

 

• 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.

 

How to apply for mortgage down payment assistance

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 who is 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.