A typical 20% down payment on a home in a U.S. metropolitan area costs $80,250, based on the median price of a single-family home of $402,600 in the second quarter of 2023.  However, for many first-time homebuyers, the hurdle of making a substantial down payment can seem insurmountable and many can only put down 3-5%, or $12,078 – $20,130.

This is where down payment assistance programs can come into play, offering a lifeline to those aspiring to become homeowners. But, what are they exactly and how can we help our clients utilize them?

What are down payment assistance programs?

Down payment assistance programs (DPAs) are initiatives designed to help first-time homebuyers bridge the gap between their savings and the down payment required to purchase a home. These programs are typically offered by government agencies, nonprofit organizations and occasionally private entities. DPAs can take various forms, such as grants, loans or second mortgages, and they are typically tailored to meet the specific needs of the target demographic.

There are four main types of down payment assistance:

• Grants: Gifted money that never has to be repaid.
• Loans: Second mortgages that are paid monthly along with your primary mortgage.
• Deferred loans: Second mortgages with deferred payments that only have to be paid when you move, sell or refinance.
• Forgivable loans: Second mortgages that are forgiven over a set number of years (often five, but maybe up to 15 or 20). These only need to be repaid if you move, sell or refinance too early.

Examples of down payment assistance programs

The FHA offers low down payment loans to first-time homebuyers. With an FHA loan, borrowers can put down as little as 3.5% of the home’s purchase price. This low barrier to entry makes homeownership more achievable for those with limited savings.

Many states in the U.S. also offer their own DPA programs to assist local homebuyers. These programs can provide grants, low-interest loans or second mortgages to cover a portion of the down payment and closing costs. The specific details vary from state to state, but they generally aim to make homeownership more accessible.

Some local housing authorities and city governments provide down payment assistance to residents. For instance, the city of Denver has its “metroDPA” assistance program, which is currently helping people throughout the Front Range become homeowners. If you make up to $188,250 a year and have a credit score above 640, metroDPA can help with a home loan and down payment assistance to help you buy a home.

Nonprofit organizations like Habitat for Humanity have been instrumental in promoting homeownership among low-income individuals and families. They offer sweat equity programs and interest-free loans to help prospective homeowners achieve their dreams.

We all know that one of the most significant barriers to homeownership for first-time buyers is the initial down payment. Many people are eager to learn ways they can afford it but feel lost as they try to navigate the landscape of what to do next. 

This is where we as Realtors are ready to educate our buyers with information and help clients find the right path(s) to alleviate financial burdens by providing funds to cover a portion of the down payment. 

Remind clients about demographics for DPAs

First, we educate clients that DPAs often target specific demographics, such as low-income families, veterans or those living in high-cost housing markets. By doing so, these programs broaden the pool of eligible homebuyers and ensure that homeownership is not solely reserved for the well-off. As a result, we should also set expectations for clients so they don’t assume they’ll have DPAs to rely on. 

Explain the different assistance programs available 

Another factor to guide clients on is that DPA programs provide assistance in the form of grants or forgivable loans, though these are harder to lock in. These funds do not need to be repaid if the homeowner stays in the property for a specified period, typically several years. This helps lower the overall cost of homeownership, making monthly mortgage payments more manageable. Be realistic with clients on whether this is a viable option for them and their current financial situation. 

Suggest credit counseling services

Educate clients on where to turn to for credit consulting. For so many, one medical bill or missed payment can take a hammer on credit scores. Clue clients in on places they can turn to in order to help improve their credit scores.

Find a housing counselor

Housing counselors throughout the country can provide advice on buying a home, renting, defaults, forbearances, foreclosures and credit issues. The counseling agencies on this list are approved by the U.S. Department of Housing and Urban Development (HUD) and they can offer independent advice, often at little or no cost to the client.

Over time, homeowners build equity as they pay down their mortgages and as property values appreciate. DPAs set first-time homebuyers on the path to wealth accumulation, enabling them to build a financial foundation for the future.

The resurgence of down payment assistance programs represents a ray of hope for first-time homebuyers, particularly those facing financial constraints. These programs play a pivotal role in reviving the dream of homeownership by reducing the initial financial barrier and making it more attainable for a diverse range of individuals and families.

By offering assistance in various forms, from government-backed loans to nonprofit grants, DPAs allow first-time homebuyers to step onto the property ladder. This not only benefits the homeowners themselves but also strengthens communities and fosters financial stability.

As the popularity of DPAs continues to grow, they hold the promise of expanding homeownership opportunities for countless individuals, ensuring that the American dream remains within reach for all those who aspire to call a house their home and ultimately build generation wealth.

Jessica Reinhardt is the 2022-2023 chair of the Denver Metro Association of Realtors.