Down Payment Options for FHA Mortgages

July 28, 2024

The dream of homeownership often hinges on the ability to save for a down payment. That upfront cost is intimidating for many aspiring homeowners, especially first-time buyers.

But the Federal Housing Administration allows borrowers to buy homes using state or local down payment assistance (DPA) to bridge this financial gap.  

DPA programs near you can help you secure your down payment and move forward with your plans to buy or build a home.

What to Know About Down Payment Assistance

Down payment assistance programs help eligible homebuyers cover part or all of the down payment and, depending on the DPA program, the qualifying closing costs. These programs are typically offered by state and local governments and non-profit organizations.

Assistance can take various forms, including grants, forgivable loans, and low-interest second mortgages. Some loans may have conditions requiring full repayment if the loan terms are not honored.

What should you know about down payment assistance before you commit?

• No FHA-Sourced DPA
  The FHA does not offer down payment assistance. However, it permits the use of DPA from approved sources.
• Approved Sources
  DPA can come from state or local governments, employers, family members, and charitable organizations. 
• Unapproved Sources
  DPA can only come from someone without a financial interest in the property's sale. The seller or real estate agent cannot provide these funds.
• Gift Funds
  Some kinds of down payment help come via gift funds from friends or family. These funds should be genuine gifts that do not need to be repaid. The source of these funds must be appropriately documented to ensure compliance with FHA rules.
• Program Variations
  DPA programs vary widely regarding eligibility requirements, assistance amounts, and terms. Some programs target first-time homebuyers, while others may have income limits or geographic restrictions. Read the fine print carefully.

Where to Find Down Payment Assistance Programs

The U.S. Department of Housing and Urban Development (HUD) provides a helpful list of state housing finance agencies on its website. These agencies often administer DPA programs or can direct you to local resources. See HUD.gov for more details.

Many cities and counties have dedicated housing departments or websites providing information on DPA programs. Search for terms like "down payment assistance" or "homebuyer programs" in your area.

Some non-profit organizations offer DPA programs, particularly for low- and moderate-income homebuyers. Organizations like NeighborWorks America and the National Council of State Housing Agencies could be valuable resources for the right borrowers.

A participating FHA-approved lender may be aware of DPA programs in your area and can guide you during the application process.

The eligibility criteria and application process for DPA programs depend on the requirements of each specific option. There may be some standard requirements, including:

First-time homebuyer status: Many programs prioritize first-time homebuyers, although some may also be available to repeat buyers who last owned a home in the past three years.

Income limits: Some programs have income caps to ensure the assistance reaches those most need it.

Credit score requirements: While the FHA has a minimum FICO score requirement of 580, some DPA programs may have stricter credit guidelines. Always ask before you commit.

Home purchase price limits: Certain programs may restrict the home's purchase price to ensure affordability.

Occupancy requirements: Most DPA programs require the homebuyer to occupy the property as their primary residence for a specified period.

Once you've identified a suitable DPA program, you'll typically need to complete an application with information about your income, assets, debts, and the property you intend to purchase. The application process may also involve attending a homebuyer education course and meeting with a housing counselor.

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