Down Payment Assistance Programs: Eligibility, Benefits, and How to Apply
Who funds this money, what it can be spent on at closing, and the income, credit and occupancy limits that decide whether you can use it.
By Maren Vickery · Oct 06, 2026 · 12 min read
Down payment assistance (DPA) is cash or a second loan that covers some or all of your down payment and closing costs. Most of it is administered by state housing finance agencies and city or county housing departments, and a large share is funded by HUD's HOME Investment Partnerships program, which many communities use to make grants to low- and moderate-income first-time homebuyers (National Housing Conference, undated). The money comes in four common shapes: grants that are never repaid, forgivable second loans, deferred or repayable seconds, and Mortgage Credit Certificates that give you an annual federal tax credit (RealCostIQ, 2026).
There is no single national DPA program with one set of rules. Eligibility is set program by program, and the first mortgage you pair it with — FHA, Fannie Mae HomeReady, Freddie Mac Home Possible, VA or USDA — brings its own income cap, credit minimum and occupancy rule on top. The figures below are the published ones for named programs; check your own state agency's current guidelines before you shop.
What This Program Covers
Down payment assistance is almost always administered locally, not federally. The two common structures are:
- HUD-funded local programs. Many communities use HUD's HOME Investment Partnerships funds to provide down payment assistance as grants to low- and moderate-income first-time homebuyers; the same funds are also used for forgivable second-mortgage loans that are forgiven gradually — for example, 20 percent per year over five years (National Housing Conference, undated). The administering body is your city, county or state participating jurisdiction; the funding source is HOME.
- State housing finance agency programs. The New Jersey Housing and Mortgage Finance Agency's flagship program pairs a 30-year fixed-rate first mortgage with a $10,000 forgivable second mortgage for down payment and closing cost assistance. That second is non-amortizing over a 360-month term and is forgiven after 36 on-time payments on the first mortgage (Mortgage World, 2026). Arizona's Home Plus Program provides assistance through a deferred, no-interest second mortgage forgiven after three years, as long as you live in the home (Forbes Advisor, undated). The Arkansas Dream Down Payment Initiative (ADDI) gives qualifying low-income Arkansans up to 10% of the purchase price, not to exceed $10,000, as a second mortgage with no monthly payment, forgivable over five years (Forbes Advisor, undated).
What the money does: it is applied at closing toward your down payment and, in programs like NJHMFA's, closing costs (Mortgage World, 2026).
What it does not do: it does not replace your first mortgage, and it does not lower your first mortgage's interest rate. A Mortgage Credit Certificate is not cash at closing at all — it is an annual federal tax credit (RealCostIQ, 2026). A deferred or repayable second must be paid back later, and a forgivable second converts to a repayable debt if you break the occupancy term: with Arizona's Home Plus, selling or refinancing within the first three years means the loan must be repaid (Forbes Advisor, undated).
Dollar caps, forgiveness periods and whether closing costs are covered differ by state and by city. Condo and multifamily eligibility, and any HOA-related review, is set by the first mortgage product and the local program, not by HUD.
Eligibility Requirements
Two layers apply: the DPA program's own rules, and the first mortgage it sits behind. Both must be satisfied.
| Criterion | Published requirement and source |
|---|---|
| Income cap — Fannie Mae HomeReady first mortgage | Qualifying income must not exceed 80% of the Area Median Income for the property's location (Neighbors Bank, undated) |
| Income cap — Freddie Mac Home Possible first mortgage | Household income cannot exceed 80% of the area median income for the property's location (Fairway Independent Mortgage, undated) |
| Income cap — USDA Section 502 Guaranteed | Income cannot exceed 115% of median household income (USDA Rural Development, June 2026) |
| Minimum credit score — HomeReady | 620 in most cases (JVM Lending, undated) |
| Minimum credit score — Home Possible | 660 FICO for all purchase loan applicants (The Mortgage Reports, undated) |
| Minimum credit score — FHA | 580 for 3.5% down; 500–579 requires 10% down (FHA.com, undated) |
| Minimum credit score — VA | None set by VA; VA requires the lender to review the entire loan profile (San Luis Obispo County Veterans Services, undated) |
| Maximum debt-to-income — Home Possible | 45% (Mortgage Research Network, undated) |
| Occupancy — Home Possible | Property must be owner-occupied by at least one applicant (The Mortgage Reports, undated) |
| Occupancy — USDA Section 502 Guaranteed | Applicant must occupy the dwelling as a primary residence (USDA Rural Development, June 2026) |
| Citizenship — USDA Section 502 Guaranteed | U.S. citizen, U.S. non-citizen national, or Qualified Alien (USDA Rural Development, June 2026) |
| Borrower's own minimum investment — FHA | Minimum Required Investment of at least 3.5% of the Adjusted Value for FHA to insure the maximum mortgage (HUD Handbook 4000.1, via FHA Handbook, undated) |
| Assistance amount — NJHMFA flagship program | $10,000 forgivable second, forgiven after 36 on-time payments on the first mortgage (Mortgage World, 2026) |
| Assistance amount — Arkansas ADDI | Up to 10% of purchase price, capped at $10,000, forgivable over five years (Forbes Advisor, undated) |
| Occupancy term — Arizona Home Plus | Deferred no-interest second forgiven after three years of living in the home; repaid if you sell or refinance sooner (Forbes Advisor, undated) |
| First-time buyer status — HOME-funded local DPA | Commonly targeted at low- and moderate-income first-time homebuyers (National Housing Conference, undated) |
Area median income is published by location, so an 80% AMI cap is a different dollar figure in every metro. Get the exact number for your county from the agency running the program before you assume you are over or under it.
How to Apply
- Pull the administering agency's participating lender list. DPA is not originated by any lender you like — NJHMFA, Arizona's Home Plus and ADDI-style programs are delivered through approved lenders only (Mortgage World, 2026; Forbes Advisor, undated). Start from the agency's list, not a rate comparison site.
- Check your county's income limit against the program's cap before you apply — 80% of AMI for HomeReady and Home Possible (Neighbors Bank, undated; Fairway Independent Mortgage, undated), 115% of median household income for USDA Section 502 Guaranteed (USDA Rural Development, June 2026).
- Complete Form 1003, the Uniform Residential Loan Application, with the participating lender, and state on it that you are applying for the agency's DPA. The lender reserves or locks the DPA funds with the agency as part of the first-mortgage reservation.
- Deliver the underwriting file: two most recent years of W-2s, 30 days of pay stubs, two months of bank statements for every account, two years of federal tax returns if you are self-employed, photo ID, and a signed gift letter for any family money that is not DPA.
- Complete the agency's required homebuyer education course and keep the completion certificate — HOME-funded and state agency programs routinely condition grant or forgivable-loan funding on it (National Housing Conference, undated).
- Review the Loan Estimate your lender issues on the first mortgage, and ask in writing how the DPA appears: as a grant credit, or as a second-lien note. If it is FHA, ask the underwriter to confirm the funds are an acceptable source for the 3.5% Minimum Required Investment under HUD Handbook 4000.1 (FHA Handbook, undated).
- Let the appraisal and title work run. Read the appraisal report and the title commitment; the agency's second mortgage will record behind your first lien.
- At closing, sign the second-mortgage note and mortgage or deed of trust with the escrow officer or closing attorney, and compare the Closing Disclosure against the Loan Estimate line by line. Keep a copy of the second-mortgage note — it states the exact forgiveness date, such as 36 on-time payments under NJHMFA's program (Mortgage World, 2026).
Disclosure requirements, who conducts closing (title company versus attorney), and recording rules are set by state law, so step 8 looks different in New Jersey than in Arizona.
How It Compares to Other Programs
DPA sits on top of a first mortgage, so the real comparison is between the first mortgages you can pair it with.
| Program | Minimum down payment | Mortgage insurance | Income cap | Credit minimum |
|---|---|---|---|---|
| FHA (HUD) | 3.5% at 580 FICO; 10% at 500–579 (FHA.com, undated) | Required for the life of the loan (homebuyer.com, 2025) | None stated in the FHA sources cited here | 580 for 3.5% down (FHA.com, undated) |
| Fannie Mae HomeReady | 3% (JVM Lending, undated) | Cancellable at 20% equity (homebuyer.com, 2025) | 80% of AMI (Neighbors Bank, undated) | 620 in most cases (JVM Lending, undated) |
| Freddie Mac Home Possible | 3% (homebuyer.com, 2025) | Conventional MI, so subject to the same 20%-equity cancellation logic as HomeReady (homebuyer.com, 2025) | 80% of AMI (Fairway Independent Mortgage, undated) | 660 FICO (The Mortgage Reports, undated) |
| USDA Section 502 Guaranteed | 0% — 100% financing, with a 90% loan note guarantee to the lender (USDA Rural Development, June 2026) | Not stated in the USDA source cited here; ask the lender for the guarantee and annual fee | 115% of median household income (USDA Rural Development, June 2026) | Not published in the USDA source cited here; set by the approved lender |
| VA-guaranteed loan | 0% (San Luis Obispo County Veterans Services, undated) | None (San Luis Obispo County Veterans Services, undated) | No income cap stated in the VA source cited here | No VA minimum; lender reviews the entire loan profile (San Luis Obispo County Veterans Services, undated) |
How to read that:
- If your score is 580–619, FHA with DPA covering the 3.5% Minimum Required Investment (HUD Handbook 4000.1, via FHA Handbook, undated) is often the only conventional-sized route open to you.
- If your score is 620 or higher and your income is at or under 80% of AMI, HomeReady's 3% down with mortgage insurance that cancels at 20% equity costs less over time than FHA's life-of-loan insurance (homebuyer.com, 2025).
- Home Possible's 660 score floor and 45% maximum debt-to-income (Mortgage Research Network, undated) are tighter than HomeReady's on credit, at the same 3% down.
- If you are eligible for VA, 0% down with no mortgage insurance (San Luis Obispo County Veterans Services, undated) usually beats pairing DPA with a conventional loan — DPA is then useful for closing costs rather than down payment.
Property type matters too: Home Possible requires owner-occupancy by at least one applicant (The Mortgage Reports, undated), and USDA requires the home to be your primary residence (USDA Rural Development, June 2026), so neither works for an investment purchase. Run the comparison with a participating lender on your actual file rather than from this table alone.
Frequently asked questions
Can I stack down payment assistance with a Mortgage Credit Certificate?
Sometimes, because they do different jobs. A grant or forgivable second is cash applied at closing; a Mortgage Credit Certificate is an annual federal tax credit, one of the four common DPA forms alongside grants, forgivable seconds and deferred or repayable seconds (RealCostIQ, 2026). Whether one agency lets you take both in the same transaction is set in that agency's program guide — ask the participating lender to confirm in writing before you reserve funds, because an MCC gives you no money at the closing table.
What triggers repayment of a forgivable second mortgage?
Selling, refinancing or moving out before the forgiveness period ends. Under Arizona's Home Plus Program the deferred, no-interest second is forgiven after three years as long as you live in the home, and if you sell or refinance within those first three years the loan must be repaid (Forbes Advisor, undated). Read the second-mortgage note for your own program: it names the exact trigger and the exact date.
Is forgiveness all at once, or gradual?
It depends on the program's note. Communities using HUD HOME funds often forgive a second mortgage gradually — for example, 20 percent per year over five years (National Housing Conference, undated), and the Arkansas Dream Down Payment Initiative forgives its loan of up to 10% of purchase price, capped at $10,000, over five years (Forbes Advisor, undated). NJHMFA's $10,000 second is instead forgiven in one step after 36 on-time payments on the first mortgage (Mortgage World, 2026).
Does DPA satisfy FHA's minimum down payment requirement?
Only if the funds come from a source FHA accepts. HUD Handbook 4000.1 requires the borrower to make a Minimum Required Investment of at least 3.5 percent of the Adjusted Value for FHA to insure the maximum mortgage amount (FHA Handbook, undated). Ask your FHA underwriter to confirm, before the appraisal is ordered, that your specific agency's grant or second loan qualifies as an acceptable MRI source under that handbook.
Can I use DPA on a rental or a home I will not live in?
No. Freddie Mac's Home Possible requires the property to be owner-occupied by at least one applicant (The Mortgage Reports, undated), and USDA's Section 502 Guaranteed program requires you to occupy the dwelling as your primary residence (USDA Rural Development, June 2026). Forgivable DPA goes further and ties forgiveness to continued occupancy — Arizona's Home Plus forgives only if you keep living in the home for three years (Forbes Advisor, undated).
Do I have to be a first-time buyer?
Often, but not always. HOME-funded local assistance is commonly aimed at low- and moderate-income first-time homebuyers (National Housing Conference, undated), while the underlying first mortgages are not first-time-only: Fannie Mae's HomeReady turns on an 80% of AMI income cap and a 620 credit score in most cases (Neighbors Bank, undated; JVM Lending, undated), not on prior ownership. Check the definition your agency uses — many count anyone who has not owned a principal residence in the past three years.
Sources
- FHA.com — FHA Down Payment Requirements for Homebuyers - 3.5% or 10%
- FHA Handbook (fhahandbook.com), quoting HUD Handbook 4000.1 — FHA Down Payment Requirements in 2024: The Definitive Guide
- JVM Lending — Fannie Mae HomeReady Mortgage - JVM Lending
- Neighbors Bank — Fannie Mae HomeReady® Loan: Requirements & Benefits
- homebuyer.com — HomeReady Mortgage: The Complete Guide To A 3% Down Payment Loan (2025)
- homebuyer.com — Home Possible: The Complete Guide To Freddie Mac Low-Down-Payment Mortgages (2025)
- Fairway Independent Mortgage — Freddie Mac Home Possible®: A Flexible, 3 Percent Down Loan for Homebuyers
- The Mortgage Reports — Freddie Mac Home Possible Mortgage: [current_year] Guidelines
- Mortgage Research Network — Freddie Mac Home Possible® Income Limits, Guidelines & More
- U.S. Department of Agriculture, Rural Development — Single Family Housing Guaranteed Loan Program (2026-06)
- San Luis Obispo County Veterans Services (VA program fact sheet) — VA Guaranteed Loan What Is a VA Guaranteed Loan?
- National Housing Conference — Down Payment Assistance
- RealCostIQ — Down Payment Assistance: Grants & Programs Explained (2026) (2026)
- Mortgage World — Down Payment Assistance 2026 (2026)
- Forbes Advisor — Housing Down Payment Assistance Programs By State
Written by
Maren Vickery
Maren shapes the publication's voice on housing markets and neighborhood change. She's drawn to the gap between how listings describe a place and how it actually feels to live there. Her editing favors plain language over jargon.
