Down Payment Assistance

The Basic Idea:

Help low-income families with the down payment they need to purchase a home.

How it works—The Essentials:

• State, federal and/or local funds are pooled to provide help with down payments for low- to moderate-income families, using a variety of approaches.
• Typically, a local administrative entity accepts applications, screens applicants and administers the funds.
• Often these programs are, at their core, state or local “first-time homebuyer” programs—frequently providing a low- or no-interest deferred second mortgage for part or all of the down payment.
• When offered as a deferred mortgage, payments are deferred for a period of time – often three to five years – or may be forgiven over time.
• Often these programs are paired with homebuyer education to help families learn to properly maintain their homes and how to avoid foreclosure.

Who Does It:

Usually a local housing development agency with funds from sources including:

• Programs funded by the Federal Housing Department (HUD) and Agriculture Department (USDA) Rural Development.
• Developers of market-rate housing in new subdivisions are charged local fees.
• Banks seeking to meet their Community Reinvestment Act (CRA) requirement.

Pros:

• It is an effective way to help families move to home ownership in places with affordable housing stock.
• Programs that use deferred loans are ultimately recapitalized when the families sell or after they get past the deferral period—allowing the money to be used again to help others.
• It can be combined with housing construction programs to increase their efficacy.

Cons:

• Families must have a sound credit rating in order to qualify for the main underlying mortgage.
• Families that don’t have to work to get a down payment may be more likely to walk away from a loan when facing financial difficulties.
• It only works in places with an adequate supply of affordable homes on the market.

Simplicity Index:

Assorted Fruits and Nuts. Depending on where you are, it may be easy to tap into a program or you may have to build a program from scratch.

Resources:

The Federal Housing Administration maintains a list of organizations that operate down payment assistance programs.