Down Payment Assistance Programs in 2024: Support for First-Time Homebuyers

Is your stress about making the down payment stopping you from taking the plunge and buying a home? We get it; the thought of putting a huge sum of money down can be daunting. The good news, though, is that there are some great down payment assistance programs out there to help first-time homebuyers keep their out-of-pocket costs to a minimum.

If you’re not a first-time homebuyer, there’s no need to worry. There are some options for you, too. Here’s everything you need to know about how to reduce your out of pocket when buying a home.

How Much Money Do I Need to Put Down?

Before we get into the down payment assistance programs, it’s important to know how much you’ll be expected to pay up front for your mortgage. When buying a home, you’ll have to cover two large sets of expenses: the down payment and closing costs.

The down payment is a percentage of the purchase price. If you are getting a Federal Housing Authority (FHA) insured loan, the down payment amount is 3.5%. Thus, for a $300,000 home, you’ll have to pay $10,500 at closing.

You’ll also have closing costs, which include things like title work expenses, origination fees, and an escrow deposit, among other costs. Closing costs can cost roughly 3-4% of the total purchase price, which equates to $9,000–$12,000 on a $300,000 home.

If you get a conventional loan, you could have to pay anywhere from 3%–20% of the home’s purchase price. On the flip side, if you are eligible for a VA or USDA loan, you might not have to put any money down.

What’s a Down Payment Assistance Program?

A down payment assistance program is designed to cover part or all of your down payment amount. Many times, you can use these funds to cover closing costs if you have any money left after paying your down payment.

For example, let’s say that you qualified for $15,000 in funding and are purchasing a $300,000 home using an FHA loan. After you cover the $10,500 down payment, you will have about $4,500 left. These remaining funds could go toward your closing costs, cutting your out-of-pocket expenses down to just a few thousand dollars.

If you are working with a good real estate agent, they will have probably negotiated some closing costs into the deal. In these instances, the seller uses profits from the transaction to cover part of your closing costs. With the right combination of down payment assistance and seller concessions, you could purchase a home with zero out-of-pocket.

I’m Not a First-Time Homebuyer — Can I Still Use Down Payment Assistance?

Can second-time homebuyers use down payment assistance? In many instances, yes. Some programs are very strict and only provide assistance to people who have never owned a home before. Others have a three-year rule, which means you can’t have owned a home in the last 36 months.

For instance, if you owned a home five years ago but sold it and have rented since then, you may be eligible for some help with your out-of-pocket costs. Keep in mind, of course, that there are other criteria, such as credit score requirements, that you’ll need to meet as well.

Is a Down Payment Assistance Program Free?

Yes and no. Down payment assistance programs generally don’t include any application or origination fees. Some programs are also structured as grants, which you don’t have to repay as long as you meet some basic criteria. For instance, many programs require you to use the home as your primary residence rather than a rental, and you’ve got to stay there for a certain period of time (Usually 24–36 months).

Other programs are structured as zero- or low-interest second mortgages. You’ll have to make payments on the second mortgage until the debt is repaid or forgiven. Many programs will forgive your debt once you make 36 on-time payments on the primary mortgage.

Finding the Right Program for Your Needs

There are many great down payment assistance programs out there for first-time homebuyers. Minnesota residents have access to some of the best programs in the nation, including the newly launched Community Fund for First-Generation Buyers. This fund provides up to 10% of the home’s purchase price (A maximum of $32,000) in assistance, which can be used to cover closing costs and the down payment.

Do all of these great programs have you excited to start house shopping? Before you start browsing, make sure you’ve got a great lender and real estate agent in your corner. Having reputable professionals backing you up can make your journey to homeownership smoother and more enjoyable.