A guide to first-time homebuyer down payment assistance

A down payment is one of the biggest upfront costs you’ll have when you buy a house. The median down payment was $26,000 in the first part of 2024, according to research from Realtor.com, and that can be a difficult hurdle for many first-time homebuyers. If you’ve never bought a home before and need help with the upfront costs, consider applying for a first-time homebuyer down payment assistance program. This type of program, which includes grants and loans, can make purchasing a home more affordable.

You can find homebuyer incentives and programs nationally or in your state — and in some cases, in the county you’re buying in. Try to research the down payment assistance available in your area before you get too far in the homebuying process so you know how much you can put down.

What is first-time homebuyer down payment assistance?

Down payment assistance for first-time homebuyers helps eligible borrowers afford their first mortgage via cash grants, tax incentives, and special loan programs like zero-interest, deferred, or subsidized loans. For reference, the median sale price for a home was $420,800 in the first part of 2024, according to data from the U.S. Census Bureau and the Department of Housing and Urban Development (HUD). Just a 10% down payment on a house of that price would be $42,080. In contrast, the average first-time homebuyer made a down payment of 8% last year, the National Association of REALTORS® (NAR) reported. A down payment assistance program can help you come up with the needed funds.

Typically, down payment assistance programs are funded by state or federal government agencies or nonprofit organizations. You can find a list of first-time homebuying assistance programs in each state on the HUD website. You can also check with your home lender about special loan programs.

One special loan program many lenders offer is an FHA loan, which is used by 23% of first-time homebuyers, according to NAR. This type of loan, backed by the Federal Housing Administration, is primarily intended for borrowers who’ve never owned a home before and requires as little as a 3.5% down payment. For borrowers who have a smaller down payment and lower credit score, FHA-backed mortgage loans may also be cheaper than conventional loans.

Types of first-time homebuyer down payment assistance

If you’re a first-time homebuyer, here are the main types of down payment assistance programs you could be eligible for:

• First-time homebuyer grants: State and local grant programs can help first-time buyers with their closing costs or down payment. For example, the National Homebuyers Fund (NHF) down payment assistance covers up to 5% of your home loan amount. Grants do not need to be repaid.
• First-time homebuyer loans: Certain lenders offer mortgages with minimal down payment and credit score requirements. This includes FHA loans, VA loans, and USDA loans. These mortgage programs come with their own interest rates, repayment terms, and eligibility requirements.
• Needs-based down payment assistance: Different states have their own programs to help first-time borrowers with a down payment or closing costs. For example, Washington state’s Home Advantage down payment assistance program has a needs-based option that offers up to $10,000 to eligible borrowers. This program has a 1% interest rate and a maximum repayment term of 30 years.
• Special loan programs: Other special loan programs — like low-interest home loans, interest-free loans, forgivable loans, and subsidized loans — can help bridge any gaps in financing. Some of these loans operate like a second mortgage, while others will be forgiven after a period of time. Depending on the program, your down payment loan could be forgiven within two to 15 years, depending on which state you’re in. The program might also reduce the loan over time, such as forgiving 20% of the loan per year until the total debt is forgiven after five years, according to the National Housing Conference. Certain loans may be deferred until you decide to move, refinance, or sell your home.
• First-time homebuyer tax credit: Depending on where you live, you could qualify for a property tax credit. For example, the NC Home Advantage tax credit offers a yearly federal tax credit of up to $2,000 to first-time homeowners or veterans in North Carolina. You must apply for a Mortgage Credit Certificate from the state’s housing finance agency. If you qualify for this tax credit, you may also be eligible for down payment assistance through the NC Home Advantage mortgage program.
• IRS’s fee waiver: To finance your home purchase, you may be able to withdraw up to $10,000 ($20,000 for couples) from your individual retirement account (IRA) without penalty.

First-time homebuyer grants vs. loans

First-time homebuyer grants and loans can make it easier for first-time buyers to purchase a home. However, there are key differences between these two types of financial assistance:

How to qualify for first-time homebuyer down payment assistance

The eligibility criteria can vary for first-time homebuyer down payment assistance. However, here’s what you’ll typically need to qualify:

• Maximum income: Most down payment assistance programs have a maximum income limit based on where you buy and your household size.
• Minimum credit score: Certain down payment assistance programs have a minimum credit score requirement. If you have a low credit score, try to improve it by making timely payments and reducing debt.
• Maximum sales price: Some lenders and agencies, like housing finance agencies, set a sales price limit on homes. If a property costs too much, it may be ineligible for assistance.
• Home type: Certain types of real estate might not qualify for down payment assistance grants or loans.
• First-time homebuyer: Most down payment assistance programs are geared toward first-time buyers. If you’ve owned a primary residence in the past three years, you might not qualify.
• Targeted demographics: Certain programs are open to the general public, while others are only available for specific demographics, such as teachers, active military, veterans, or recent graduates.
• Education courses: Depending on your state and program, you may be required to take a homebuyer education class before receiving assistance.

How to apply for first-time homebuyer down payment assistance

Just as it’s important to know how to buy a house, it’s also useful to know how to apply for homebuyer programs. Although the process can vary, here’s how it generally works:

1. Do your research: Check with the HUD or your loan officer about the first-time homebuyer incentives and programs available in your city, county, or state. Look for participating lenders that offer special loan programs. Make a list of your possible options.
2. Reach out: Contact each organization or your loan officer with any questions or concerns you might have. This can also help you determine whether you qualify for assistance.
3. Review the eligibility criteria: Each down payment assistance program has its own eligibility criteria. This may include proof of residency, income limits, or minimum credit score requirements. Familiarize yourself with these before proceeding.
4. Gather your documents: Get your financial and personal information together so that you’re prepared for the application process. For example, you might need pay stubs, recent bank statements, proof of employment, and previous years' tax returns.
5. Complete the application: Once you’ve settled on a program — or programs — you can fill out the applications. Be prepared to provide additional information or documentation upon request.

First-time homebuyer down payment FAQ

How much will I put down with first-time homebuyer assistance?

This depends on your financial situation and goals. You may be eligible to put down as little as 3% with a conventional loan, but many lenders will want you to pay for private mortgage insurance (PMI) if you put down less than 20%. With certain loans, like FHA-insured loans, you could qualify with a down payment as low as 3.5%. On a $350,000 home, that’s a $12,250 down payment.

Will down payment assistance affect my interest rate?

The interest rate on a down payment assistance loan depends on the program and state. Some loans come with a higher interest rate. Others have a rate that’s similar to the original mortgage.

Can I qualify for down payment assistance in every state?

Most states offer down payment assistance, but programs vary by location. To qualify, you’ll typically need to purchase a home in the state you’re applying for assistance.

Are there any income requirements to qualify for down payment assistance?

Down payment assistance programs typically come with income limits. Most are designed to help low- to medium-income households. The exact income threshold depends on your location.