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Down Payment Loans You May Not Know About

by | Mar 31, 2023 | 1st Time Home Buyers, Renters

One of the biggest hurdles to overcome for many homebuyers is making the down payment necessary to purchase a new home. For most, it takes years to save up enough money to be able to afford a transaction that substantial. However, there are loans available for some homebuyers that can ease this burden. You just need to know where to look.


Read on to see if you might qualify for one of the down payment loans listed below.


1 – First-Time Homebuyer Loan Programs

One of the most accessible methods of getting ahold of a down payment loan is the multitude of programs that are available for first-time homebuyers. Even if this isn’t technically your first home purchase, you could still be considered a first-time homebuyer. For example, if you haven’t owned a home in the last three years, you could qualify. Check with your lender to see if you meet any of the requirements to be considered a first-time homebuyer.


2 – Conventional Loans

There are two organizations that set the guidelines for conventional loan programs – Fannie Mae and Freddie Mac. These organizations do not provide these programs themselves but instead regulate and approve those offered by lenders that do – such as banks, credit unions, and online lenders. Each of the programs listed below requires a 3% minimum down payment, which makes them a much more affordable option for homebuyers who cannot offer much upfront as a down payment but who have strong credit.

  • Conventional 97 Mortgage

As with most conventional loan programs, you will also need to pay for private mortgage insurance (PMI). However, if you have a minimum credit score of 620 and can afford 3% down, you could qualify for this program which is backed by both Fannie Mae and Freddie Mac.

  • HomeOne Mortgage

This program likewise requires you to carry PMI and 3% down, but is only available for first-time homebuyers and has some additional criteria that must be met. It is backed by Freddie Mac.

  • HomePossible Mortgage

This program, backed by Freddie Mac, requires a minimum credit score of 660 and 3% down.

  • HomeReady Mortgage

This program, backed by Fannie Mae, requires a minimum credit score of 620 and 3% down. Although you must also carry PMI for this loan, the underwriting attached is more flexible. And, if you use this loan to purchase a HomePath property, you could also be granted a $500 credit to put toward the close cost of the home.


3 – Government Loans

There are even a few mortgage loans insured by various government agencies. While these loans are not created or funded by these agencies, they are available throughout the U.S. through government-approved lenders. If you are a legal resident or citizen of the United States, you could qualify if you meet their additional criteria.

  • FHA Loan (Federal Housing Administration)

If you have a down payment of less than 20%, you will be required to carry FHA mortgage insurance in addition. This loan also requires a minimum credit score of 580 and 3.5% down. You can still get approved with a score as low as 500, but that requires 10% down instead.

  • USDA Loan (Department of Agriculture)

This loan is available to homes in designated low-density areas, such as suburbs and rural properties. You must have a minimum credit score of 620 and it covers 100% of the financing. There are additional fees that this loan requires, however.

  • VA Loan (Department of Veterans Affairs)

Available only to qualified service members of the armed forces, this type of loan covers 100% financing and offers a lower interest rate than many other mortgage loans. It does, however, require a minimum credit score of 620 and a funding fee. This fee can be rolled into the monthly payments against this loan and some members may be exempt from this fee entirely.


4 – Forgivable Mortgages

You might have heard that there are certain cities across the country that pay people to move there. Some communities and municipal governments support forgivable mortgages because it encourages community investment and long-term homeownership. Lenders in these areas may offer such loans as an incentive because of this. This type of downpayment loan is where the lender writes the mortgage off once you meet predetermined conditions over a period of time.


5 – Nonprofit Program Assitance

If your income falls into the low to moderate range, you could be eligible for a nonprofit or charitable program. These types of loans are offered by non-government organizations that provide financial and educational resources regarding the purchase of a home. Typically, these kinds of loans come with income restrictions and often use “character-based” standard qualifications instead of the usual risk assessment standards used by mortgage lenders.


Most nonprofits and charities are specific to certain regions of the country and you should check the Department of Housing and Urban Development (HUD) website to check the list of approved organizations. But we’ll touch on a few more well-known examples below.

  • Habitat for Humanity

Arguably the most well-known nonprofit housing organization, this international group provides housing for low-income families. These “simple, decent, and affordable” homes are built by volunteer labor specifically for those in need. Though they have built more than 800,000 homes, they make no profit on the closing of these properties.

  • National Homebuyers Fund

This nonprofit public benefit corporation sponsors homebuyers by paying up to 5% of a home’s purchase price. Some homebuyers might also be eligible for this program simultaneously with an FHA, USDA, VA, or possibly even a conventional loan. This loan is also forgiven five years after the closing date has elapsed. You must find a mortgage lender who participates in this program to apply for this grant on your behalf, as you cannot do so directly.

  • Neighborhood Assistance Corporation of America

NACA is a nonprofit organization that provides mortgages with low rates to those who qualify with 0% down and no closing costs. They provide low-income families with counseling and mortgage education and will aid financially unstable households in finding lenders who will be willing to work with them. NACA assistance does not require a minimum credit score.


6 – Student Grants and Loans

There are states who offer assistance programs specifically for those who owe debts on student loans. Some of these options are only for first-time homebuyers, but it never hurts to check whether or not you qualify for these programs. Certain loans have more flexible debt-to-income requirements, which might be helpful if you are carrying a student loan balance. Check with your state’s website or a real estate professional to see what options you might be eligible for.


7 – Good Neighbor Next Door Program

This program, sponsored by HUD (Department of Housing and Urban Development), provides housing assistance for emergency medical technicians, firefighters, first responders, law enforcement officers, and teachers of pre-K through 12th grade. The discounts offered through this program, usually to first-time homebuyers, can be as much as 50% of the total purchase of the home.


Most of the properties available through the Good Neighbor Next Door Program are typically foreclosures and are located within a “revitalization area”. Typically you must agree to live in the house for at least 3 years to avoid paying back this assistance.


Be certain to check HUD’s website for available properties in the area where you are considering purchasing your new home. But here are some more details on two of the specific programs offered.

  • Nurse Next Door.

Healthcare support employees, medical staff, and nurses may be eligible for an $8,000 grant or down payment assistance (DPA) of more than $10,000. For buyers who are eligible, most closing costs are also covered.

  • Teacher Next Door.

Educators might be eligible for grants and DPA with terms similar to those listed above.


8 – Native American Direct Loan

These types of loans, called NADL, provide eligible Native American veterans and their spouses with a loan to purchase, improve, or build a new home on land held in the federal trust. The VA itself is the lender with this type of loan, as opposed to simply being backed by them, as with a traditional VA loan. There is a funding fee that accompanies this loan, but it comes with a 0% down payment and there is no mortgage insurance requirement.


9 – Down Payment Assistance Grants

Governments at the local, state, and federal levels all likewise offer grants for first-time homebuyers. To be considered for this, your household typically needs to bring in a low to moderate income (usually defined by being no more than 80% of your area’s median income). There are typically several other requirements that must be met in order to qualify for these grants, such as an upper limit on the cost of the home and a minimum credit score of 640.


These grants could assist in covering your down payment or your closing costs and they do not require repayment. In exchange for these grants, you are considered to be performing a public service of homeownership, which forms an economic cornerstone here in the U.S.


10 – Down Payment Savings Match

These types of programs can assist by matching the amount of money you manage to put down on a home. Down payment savings match programs match your funds up to a certain limit over a predetermined period of time. Those savings are then able to be applied toward the down payment and closing costs for the purchase of a home.


The Individual Development Account is an example of this type of program offered by some state agencies. There are even some programs that will contribute three-to-one for every dollar that you can save. If you are deemed eligible for this type of program, you will work with a counselor to deposit the savings into a specialized account. On closing day, if you managed to save the required amount of money, that agency will match your payment. 


11 – Employer-Assisted Housing

There are even some employers who use housing incentives to aid their employees with covering the closing costs and down payments associated with buying a home. These programs, usually in the form of a grant or forgivable loan, typically only apply to neighborhoods that are located near the workplace. Certain labor unions might offer this kind of financial aid as well. EAH programs are usually limited in the kind of occupations they are available through and often come with other criteria for qualification. But check with your HR representative or manager to see if your company offers this kind of opportunity.


Bottom Line: You Have Options

As evidenced by those listed here, there are many grants, loans, and programs available that can offer financial assistance with purchasing a home. Some of them are available from nonprofits, charities, or certain employers. Some of them are even offered by your local, state, or federal government agencies.


If you need help with covering the down payment of your new home, don’t fret. Reach out to the housing authorities in your town, city, or state and see if you might qualify for one or more methods of this assistance. And now you can do so with the knowledge of what help might be available and that you could be taking the next step in buying your new home.

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