Down Payment Assistance Programs: How DPA Works in 2026
How down payment assistance works: grants, forgivable and deferred seconds, matched savings and MCCs, finding your state HFA, the rules and the catches.
Short answer
Down payment assistance programs give or lend home buyers money for the down payment or closing costs. Most are run by state and local housing finance agencies. The help comes as grants, forgivable or deferred second loans, matched savings or tax credits, and usually requires homebuyer education and income or price limits.
Key takeaways
- Most down payment assistance comes from state and local housing finance agencies, and the National Council of State Housing Agencies keeps a directory of them.
- DPA comes in five main forms: grants, forgivable second mortgages, deferred-payment second mortgages, matched savings accounts and Mortgage Credit Certificates.
- A Mortgage Credit Certificate turns 10% to 50% of your mortgage interest into a federal tax credit, capped at $2,000 a year when the rate is above 20%.
- If you sell within 9 years of a loan financed with a mortgage revenue bond or MCC, you may owe a federal recapture tax, figured on IRS Form 8828.
- Fannie Mae's HomeReady allows 3% down for incomes up to 80% of area median income and can be paired with a Community Seconds loan up to a 105% combined loan-to-value.
- Assistance often comes with a slightly higher first-mortgage rate or fees, so compare the total cost with and without DPA.
At a glance
- Who runs it
- State and local housing finance agencies, cities, counties, nonprofits
- Main types
- Grants, forgivable seconds, deferred seconds, matched savings, MCCs
- Common rules
- Homebuyer education, income limits, price limits, primary residence
- Works with
- FHA, conventional, VA and USDA, depending on the program
- Where to look
- Your state HFA (NCSHA directory) and HUD's state pages
- Main catches
- Repayment on sale or refinance, higher rates, recapture tax
In this guide7
Down payment assistance programs help home buyers cover the down payment, closing costs, or both. The money usually comes from a state or local housing finance agency (HFA), a city or county, or a nonprofit. You still take out a normal first mortgage. The assistance sits on top as a grant, a second loan, or a tax credit.
Down payment assistance (DPA) can turn a five-year savings plan into a one-year plan. But it is not free money in every case. Many programs must be repaid when you sell or refinance, some come with higher rates, and almost all have income limits, price limits and homebuyer education rules.
This guide explains each type of DPA, how to find your state’s programs, how DPA works with FHA, conventional, VA and USDA loans, and the catches to check before you sign. Program rules change often, so confirm current terms with the agency and an approved lender.
How does down payment assistance work?
You apply for DPA through a lender approved by the program, at the same time as your mortgage. If you qualify, the program funds part of your down payment or closing costs at closing. The help is recorded as a grant, a second lien on the home, or a tax certificate.
Most state HFA programs work as a package. The agency sets the rules for both the first mortgage and the assistance, and a network of approved lenders makes the loans. Local programs run by cities or nonprofits may pair with any lender’s first mortgage, as long as that lender accepts the second loan.
What types of down payment assistance are there?
There are five main types: grants, forgivable second mortgages, deferred-payment second mortgages, matched savings programs and Mortgage Credit Certificates. They differ mostly in whether, and when, you pay the money back. Read the paperwork to know which one you are getting.
| Type | Repaid? | When it is due | Good to know |
|---|---|---|---|
| Grant | Usually no | Never, if rules are met | Some “grants” are really forgivable loans |
| Forgivable second | Only if you leave early | On sale, refinance or move-out during the term | Forgiven over a set number of years |
| Deferred second | Yes | On sale, refinance or payoff | No monthly payment; may be 0% interest |
| Amortizing second | Yes | Monthly, like a small loan | Adds to your monthly payment and DTI |
| Matched savings (IDA) | No | Not applicable | Program matches what you save |
| Mortgage Credit Certificate | No | Possible recapture tax on early sale | Federal tax credit each year |
Grants
A true grant is a gift you never repay, as long as you follow the program rules. Grants are often smaller than loans and may run out of funds during the year. Check the documents to confirm nothing is recorded against the home.
Forgivable and deferred second mortgages
A forgivable second mortgage is a loan that is reduced each year you live in the home, until it disappears. A deferred second has no monthly payment but must be repaid in full when you sell, refinance or pay off the first mortgage. Both are recorded as a lien behind your first mortgage.
Matched savings programs
Matched savings, sometimes called Individual Development Accounts (IDAs), match the money you save toward a home. They are usually run by nonprofits and require financial education. You need to start months ahead, so they suit early planners.
Mortgage Credit Certificates
An MCC is not cash at closing. It is a certificate issued by a state or local government unit that lets you claim part of your mortgage interest as a federal tax credit. Per IRS Form 8396, the certificate credit rate is between 10% and 50%. If the rate is above 20%, the yearly credit is capped at $2,000, and unused credit can carry forward up to 3 years.
How do you find down payment assistance in your state?
Start with your state housing finance agency. The National Council of State Housing Agencies (NCSHA) keeps a directory of every state HFA. Then check your city or county housing department, HUD’s state pages, and a HUD-approved housing counselor who knows local programs.
- Find your state HFA through the NCSHA housing help directory. Open its homebuyer section and note each program’s income and price limits.
- Check HUD’s state pages at hud.gov/states for local homebuying resources in your state.
- Search your city and county housing or community development office for local DPA.
- Talk to a HUD-approved housing counselor through HUD’s counselor search. Many counselors also provide the homebuyer education that DPA programs require.
- Get a list of approved lenders from each program. Only they can close loans with that assistance.
- Ask each lender for a Loan Estimate with and without DPA so you can compare.
What are the usual rules for DPA?
Most programs share the same core rules: the home must be your primary residence, your household income and purchase price must be under limits, you must complete homebuyer education, and you usually need a minimum credit score and a small contribution of your own. Many programs also target first-time buyers.
| Rule | What it usually means | Where to check |
|---|---|---|
| Homebuyer education | A class or counseling before closing | Program guide; HUD counselor |
| Income limit | Household income at or below a set level for your area | Program income chart |
| Purchase price limit | Home price at or below a set level | Program price chart |
| First-time buyer | Often no home ownership in the past three years | Program definition |
| Primary residence | You must live in the home | Note and deed restriction |
| Minimum contribution | A small amount of your own money | Program guide |
| Credit score | Program minimum, often above the loan program’s | Approved lender |
What counts as a first-time buyer?
Each program writes its own definition. Many use a three-year look-back, meaning you have not owned a primary home in the last three years. Some programs waive the rule in targeted areas or for veterans. Check the exact wording before you assume you do or do not qualify.
How does DPA work with FHA, conventional, VA and USDA loans?
DPA can pair with all four main loan types, but each has its own rules. FHA and conventional loans are the most common partners. VA and USDA loans already allow no down payment in most cases, so DPA with them often covers closing costs instead.
- FHA. FHA’s minimum down payment is 3.5% with a 580+ credit score, and FHA lets acceptable sources, such as qualifying government and nonprofit programs, help fund it under HUD’s rules. See our FHA loan guide for the base rules.
- Conventional. Fannie Mae’s HomeReady and Freddie Mac’s Home Possible allow 3% down. Fannie Mae’s HomeReady rules cap income at 80% of area median income and allow a combined loan-to-value up to 105% with a Community Seconds loan. Freddie Mac’s Home Possible also limits qualifying income to 80% of area median income. More in our conventional loans guide.
- VA. Eligible veterans with full entitlement often need no down payment. DPA may help with closing costs. See our VA loans guide.
- USDA. USDA guaranteed loans usually need no down payment in eligible rural areas. DPA may cover closing costs. See our USDA loans guide.
Fannie Mae requires homeownership education for HomeReady purchases when all occupying borrowers are first-time buyers, per section B2-2-06. Many DPA programs add their own class requirement on top.
What are the costs and catches of DPA?
Down payment assistance can cost money in less obvious ways. Watch for repayment when you sell or refinance, a higher rate on the first mortgage, extra fees, a federal recapture tax on early sale, and restrictions that make refinancing harder later.
Higher rates and fees
Some agency first mortgages that come with DPA carry a slightly higher interest rate or extra fees than the same lender’s standard loan. Over many years, a small rate difference can cost more than the assistance. Compare the total cost with and without DPA.
Federal recapture tax
If your first mortgage was funded through a tax-exempt mortgage revenue bond, or you had an MCC, you may owe a recapture tax if you sell within 9 years. The IRS Form 8828 instructions explain the test, which also depends on your gain and income growth. Ask your agency whether it offers any protection against recapture tax.
Rules that follow you after closing
Many programs require you to live in the home for a set time and to tell the agency before you rent it out, refinance or sell. Some forgivable loans restart or become due if you refinance for cash. A few programs share part of your future profit with the agency. Keep a copy of every DPA document and calendar the forgiveness dates so you know where you stand before any big decision.
Mortgage insurance still applies
DPA does not remove mortgage insurance. A conventional loan with less than 20% down usually carries PMI, and FHA has its own premiums. Our mortgage insurance guide explains how each works and when it ends.
Steps to get down payment assistance
Getting DPA is mostly about timing and paperwork. Start before you shop for homes, because education and approval can take weeks. Line up the program, the lender and the class first, then make offers knowing how much help you will get.
- Check your budget and credit and set a price range.
- List programs from your state HFA, city and county, and note each one’s limits.
- Take homebuyer education from an approved provider.
- Choose a program-approved lender and get preapproved with the DPA built in.
- Compare Loan Estimates with and without assistance.
- Shop for a home that fits the program’s price limit and property rules.
- Review all DPA documents at closing, including any second-lien note and recapture notice.
- Keep your paperwork so you know the forgiveness schedule and any repayment rules later.
For a side-by-side view of every loan type, see our types of mortgage loans compared guide.
For context, the national average 30-year fixed rate was 7.40% as of October 15, 2026 (Freddie Mac). FHA, VA and USDA rates are set by each lender and often differ.Source: Freddie Mac Primary Mortgage Market Survey, via FRED
Tools
Try it: Down payment savings
Results
- Savings goal (down payment + closing)
- $21,125
- Still to save
- $15,125
In plain words
To buy a $325,000 home with 3.5% down and 3% for closing costs, you need $21,125. You still need $15,125. Saving $600 a month at 4% a year, you would reach your goal in 24 months (2 yrs 0 mo).
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Down Payment Savings Calculator: How Long Until You Can Buy?
Frequently asked questions
How does down payment assistance work?
A program gives or lends you money for the down payment or closing costs, usually through an approved lender at closing. You still get a regular first mortgage. The help may be a grant, a second loan or a tax credit, each with its own rules.
Do down payment assistance grants have to be repaid?
True grants usually do not, but many programs called grants are really forgivable loans. Those may need to be repaid if you sell, refinance or move out before a set number of years. Read the note and recorded documents before closing.
Who qualifies for down payment assistance?
It depends on the program. Most require the home to be your primary residence, set income and purchase price limits, and require homebuyer education. Many target first-time buyers, which programs often define as not owning a home in the past three years.
Can I use down payment assistance with an FHA loan?
Yes. FHA is commonly paired with state and local DPA. The assistance must come from an acceptable source and follow FHA rules, so use a lender approved by the program.
Does down payment assistance raise my interest rate?
Sometimes. Some agency first mortgages that come with DPA carry a slightly higher rate or extra fees. Ask the lender for Loan Estimates with and without assistance and compare the total cost.
What is a Mortgage Credit Certificate?
An MCC is a certificate from a state or local agency that lets you claim a federal tax credit for part of your mortgage interest each year. The credit rate is 10% to 50%, with a $2,000 yearly cap if the rate is above 20%.
Can I get down payment assistance if I already own a home?
Some programs allow it, but many are limited to first-time buyers. Exceptions often exist for targeted areas, veterans or buyers who have not owned recently. Check your state housing finance agency's rules.
Sources
We checked the facts in this guide against these sources. Rules and limits change, so confirm current figures with the program or your lender.
- State Housing Finance Agencies (Housing Help)
- HUD state information pages
- Form 8396, Mortgage Interest Credit
- Instructions for Form 8828, Recapture of Federal Mortgage Subsidy
- Selling Guide B5-6-01, HomeReady Mortgage Loan and Borrower Eligibility
- Selling Guide B2-2-06, Homeownership Education and Housing Counseling
- Home Possible
- Talk to a Housing Counselor
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