Homebuyers

Bridge the Gap: How Homebuyers Can Use Down Payment Assistance on Conventional Loans

Your fingers are sore from scrolling through real estate listings when you finally spot the perfect home. It’s got everything you wanted and it’s in just the right location. But there’s a catch. This particular home comes with a hefty price tag—which means you’ll have to come up with a larger down payment.

However, the typical first-time buyer only kicked in 9% of the purchase price of their home in 2024, according to the National Association of Realtors.

This is where down payment assistance (DPA) programs may be able to help them bridge the gap. These programs are generally grants or low-interest loans that buyers can use to help cover down payments and closing costs. And they can generally be used with Conventional loans, the most popular type of mortgage.

“These programs help lower the monthly payment for qualifying buyers,” said New American Funding Branch Manager Brenda Robinson. She’s based in Inglewood, Calif.

What is down payment assistance?

Down payment assistance programs help eligible homebuyers cover costs, leveraging grants and low-interest loans. They’re typically offered at the city, county, or state level.

Many are targeted at first-time buyers, although repeat buyers may be eligible. Some aim to boost homeownership in certain areas, while others are only available to buyers who work in particular fields, have lower incomes, or other factors.

Typically, the assistance is only available on primary home purchases. That means you can’t use it to buy a vacation home or an investment program.

Some programs only cover the minimum down payment of 3.5% for an FHA loan, while others may offer enough support to remove private mortgage insurance (PMI) completely. PMI is added to a Conventional mortgage if the borrower does not provide a 20% down payment.

“The sales price minus the down payment assistance equals the loan amount,” said Robinson. “So, it results in a more affordable monthly payment.” 

How do you find down payment assistance? 

There are plenty of down payment assistance programs across the country.

Prospective buyers can find them on real estate listing portals, like Zillow, on websites like Down Payment Resource, and through online searches. Some mortgage lenders also offer their own down payment assistance programs.

Many loan officers will also work with buyers to help them identify DPA programs and guide them through the application process.

You may even be able to use multiple DPA programs if you qualify for more than one program. This could help someone reach the 20% down payment threshold to eliminate the need for PMI.

The pros and the cons of down payment assistance

At first glance, down payment assistance programs are a resounding win for homebuyers, but there are a few things to consider.

Some DPA programs are loans repaid through an equity share in the home. This means when you decide to sell your home, you may have to share a certain portion of the profits with the program as a repayment.

You may also be required to live in the home for a set number of years. 

If you find a program operated as a grant or a forgivable loan through certain qualifying activities, you will not need to share equity or repay the down payment amount. 

Buyers who use DPA may receive a higher interest rate on their mortgage, since they are putting down less of their own money.

Loans that use down payment assistance also generally take longer to process. For example, a 30-day closing is often unrealistic, especially for homebuyers using multiple programs.

But the benefits of these programs may outweigh the disadvantages.

“There’s such a shortage of affordable homes,” said Robinson. “These programs allow people to build wealth through real estate who otherwise couldn’t.”

Brenda Robinson NMLS # 954742