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First-time buyer programs

Types of down payment assistance: grants, forgivable loans and seconds

Two offers of "down payment assistance" can look identical on a flyer and cost you very differently when you sell, refinance or move. The structure of the help matters as much as the amount.

Reviewed November 2026 · Written for Buy Home Tips from the sources listed below

Down payment assistance is help from a state agency, city, county, nonprofit or employer toward the cash you need to buy. Most programs are run locally, so the details vary, but nearly all fit one of four structures. Knowing which one you are being offered tells you what it really costs.

What you may owe on $10,000 of assistance if you sell in year 3Grant$0Forgivable over 5 years$4,000Deferred, repaid on sale$10,000Repayable second, 3% over 10 years$7,308
What you may owe on $10,000 of assistance if you sell in year 3. Worked example from this guide with simplified terms; real programs set their own

The four structures

1. Grants. Money you do not repay. Fannie Mae's Selling Guide allows grants from acceptable entities, such as eligible public agencies and nonprofits or a lender, for all or part of the down payment, closing costs or reserves on a principal residence. Some grant programs still ask you to live in the home for a set time.

2. Forgivable loans. A second mortgage that shrinks over time and disappears if you stay. A common pattern forgives a portion each year you keep the home as your residence. Sell or refinance early, and you repay the unforgiven part.

3. Deferred loans. A second mortgage with no monthly payment, repaid in full when you sell, refinance or pay off the first mortgage. Some charge no interest; some share in the home's appreciation.

4. Repayable seconds. A second mortgage with a monthly payment, usually at a low rate. It adds to your housing cost and to your debt-to-income ratio.

Some programs also offer help that is not cash at closing, such as a mortgage credit certificate, which reduces federal income tax over time. Its rules are separate from down payment help.

Where the money must not come from

Assistance has to come from an acceptable source. Fannie Mae, for example, does not allow grants from the seller or another interested party, and it says down payment assistance may not be funded through the first mortgage, such as through premium pricing on the rate. If an offer sounds like the seller or builder is the real source, ask your lender how it will be treated.

How assistance fits the first mortgage

Your first mortgage lender must approve the assistance and include it in the loan file. Some programs require you to use their participating lenders or a specific first mortgage. Ask early, because program funds and approvals can take time, and your purchase contract deadlines will not wait.

Many programs also require a homebuyer education course. Finish it early so the certificate is ready before underwriting.

Paperwork you should receive

Ask for the program's written terms before you sign the purchase contract, including the note and any recorded lien. Federal rule 12 CFR 1026.3(h) means you may not receive a Loan Estimate or Closing Disclosure for certain interest-free subordinate loans made through homebuyer assistance programs, which makes the program's own documents your main record of what you owe. Keep them with your closing papers. When you sell or refinance years later, you will need to know exactly what must be repaid.

Finding programs

Start with your state housing finance agency through the NCSHA directory. HUD's state pages list local resources, and a HUD-approved housing counselor can compare programs for your income and area at little or no cost.

Mini calculator: months to your cash goal

Add the down payment, closing costs and a cushion, then see how long your monthly saving takes to get there.

Enter your figures to see the result. Nothing you type leaves this page.

This ignores interest, so a savings account that pays interest gets you there slightly sooner.

Questions for any program

  • Is this a grant or a loan, and is there a lien on the home?
  • If it is forgiven, over how many years, and what ends the forgiveness?
  • What must be repaid if I sell, refinance or move out, and when?
  • Is there interest, and is there a monthly payment?
  • What income, price and first-time buyer limits apply?
  • Is a homebuyer education course required, and by when?
  • Which lenders take part, and how long does approval take?

Questions buyers ask

Is down payment assistance free money?

Sometimes. Grants generally do not have to be repaid. Many programs instead use second mortgages that are forgiven over time, deferred until you sell or refinance, or repaid monthly. Read the terms to know which you have.

Does down payment assistance affect my monthly payment?

Grants and deferred or forgivable loans usually do not add a monthly payment. A repayable second mortgage does, and it counts in your debt-to-income ratio.

Where do I find down payment assistance?

Start with your state housing finance agency, listed in the NCSHA directory, and HUD's state pages for local programs. A HUD-approved housing counselor can also help you compare programs.

Will I get a Loan Estimate for the assistance loan?

Not always. Under 12 CFR 1026.3(h), certain interest-free subordinate assistance loans with limited fees may come with other Truth in Lending disclosures instead of a Loan Estimate and Closing Disclosure, so ask the program for its written terms.

Sources checked for this page

Checked November 2026. Programs and limits change; confirm with the source before you rely on a figure.

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