Down Payment Assistance Requirements: Do You Qualify?
There are over 1,600 active down payment assistance (DPA) programs across the U.S. says Urban Institute. Each has its own list of requirements.
While it would be impossible to cover all qualifications here, we can look at general themes across most DPAs. If it sounds like you might be eligible, you can get more specific by searching for local programs to find a good match.
Check your eligibility. Contact a lender.
First-Time Homebuyer Requirement
Urban Institute says 62% of DPA programs nationwide require the recipient to be a first-time buyer.
This is usually defined as not having full or partial ownership in a home in the past three years. Some programs could make exceptions for divorcées or other situations, so check guidelines.
Even if you’re not a first-time buyer, though, you still may be eligible. Somebody buying in a certain area or working in a public service profession may be able to receive DPA even when selling and buying again.
Income Limits
Your income level is perhaps the most important factor when qualifying for DPA.
Urban Institute says 72.7% of programs nationwide have an income cap.
45% of programs require you to make 80% or less of the area’s median income (AMI)
8% require 80-120% of AMI
19% have a cap, but allow incomes over 120% of AMI
27% have no income cap
Income limits make sense. No DPA program has unlimited funds, so agencies reserve them for buyers who need them most.
Caps vary dramatically depending on location. For example, Washington State residents can make up to $180,000 per year and still qualify for DPA in the state. Some California programs allow incomes over $250,000.
Compare that with someone buying in Choctaw County, Mississippi, where the maximum eligibility income is $82,570.
Homebuyers who think they make too much should check local and national programs. According to Urban Institute, over 27% of programs nationwide have no income restrictions.
Geographic Restrictions
As you can imagine, state-funded DPA programs require you to buy in the state. Some may even require you to establish state residency.
Other programs are offered within city or county limits.
But many DPA programs want to encourage neighborhood revitalization. As such, they offer assistance only within certain neighborhoods.
For example, Wayne County, Michigan offers an interest-free loan of $5,000 to $14,999 toward the down payment and closing costs for existing homes in 37 communities.
Career and Professions
Public servants are vital to any community, but often don’t make what they deserve. Sometimes they can’t afford to live in the neighborhoods they serve.
So state housing finance agencies have special programs to attract these individuals.
Texas offers various DPA programs for teachers, first responders, correctional officers, police officers, and others in the amount of 2%-5% of the home’s price.
Similar programs may be available from city, county, and state governments across the U.S.
Primary Residence
Most if not all down payment assistance requires you to live in the home as your primary residence for a certain number of years.
In fact, many make it a condition of down payment assistance forgiveness, for example, a DPA loan forgiven if you live in the home for a certain amount of time.
Urban Institute says the median requirement is five years.
This prevents investors from buying homes and immediately selling or converting the home into a rental.
Owner-occupancy isn’t a big ask for most buyers, though, says Urban Institute. Homeowner tenure is a median of 10 years.
Loan Repayment Requirements
Some DPAs require you to pay back the loan in one way or another.
A few come with monthly payments where you pay it back over time.
Most are “silent seconds,” meaning they are second mortgages that require no payment. You pay them off when you refinance or sell the home. If you keep the home and loan long enough, a payment may come due when you pay off the first mortgage.
In any case, silent seconds don’t increase the homebuyer’s debt-to-income ratios or affect the first mortgage approval. Additionally, they give homeowners time to build equity to pay off the loan or wrap it into their next refinance.
Using a Certain Lender’s Program
Some lenders offer down payment assistance nearly nationwide if you use their proprietary program.
Typically they charge higher rates and fees and credit back a down payment through an approved third-party agency.
These programs often come with no income, geographic, or career-specific requirements. They only require that you use them as the lender and qualify for the loan.
While you may find a better deal using a local program, these are good solutions for buyers with limited options in their area or those who make too high an income.
Getting Down Payment Assistance: Not as Difficult as You Might Think
With more than 1,600 flavors of DPA to choose from, there’s likely a program with requirements that match your situation.
Tim Lucas spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. Tim has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, and more.
