Down Payment Assistance Programs: How to Get Free Money for Your Down Payment
Last updated: October 2026 · Editorial standards
Down payment assistance (DPA) programs provide grants or low-cost second mortgages to help buyers cover their down payment and closing costs. These programs exist in every state, are legal, and are specifically designed to be used in conjunction with standard mortgage financing. Yet they’re dramatically underutilized — surveys consistently show that most eligible buyers don’t know they exist.
Here’s how they work and how to find them.
Types of Down Payment Assistance
Grants Free money — no repayment required, ever. Grants typically range from 1–5% of the purchase price. They’re funded by state and local governments, HUD, and nonprofit organizations. Some have no income limits; most target buyers below 80–120% of area median income.
Forgivable second mortgages A second mortgage loan at 0% interest that is forgiven (erased) after you fulfill an occupancy requirement — typically 3, 5, or 10 years. If you sell or refinance before the forgiveness period ends, you repay a prorated portion. After the period, the debt disappears.
Deferred second mortgages A second mortgage at 0% interest with no required monthly payments. Repayment is due when you sell, refinance, or pay off the first mortgage. No out-of-pocket cost during ownership — and in rising markets, the home appreciation often offsets the eventual repayment.
Matched savings programs (IDAs) Individual Development Accounts match your savings at a ratio of 2:1, 3:1, or even 4:1 up to a set maximum. You save $2,000, the program contributes $4,000 (at a 2:1 match). These require a longer enrollment period (1–2 years) and are less common.
Common Eligibility Requirements
Most DPA programs share similar requirements, though specifics vary:
| Requirement | Typical Standard |
|---|---|
| First-time buyer | Usually required (or no ownership in past 3 years — HUD definition) |
| Income limit | 80–120% of area median income (AMI) |
| Credit score | 620–640 minimum (varies by program) |
| Purchase price limit | Below a set maximum (varies by area) |
| Primary residence | Required; investment properties not eligible |
| Homebuyer education | Required (usually 4–8 hour online course, ~$75) |
| Occupancy | Must remain in home for a set period (3–10 years for forgiven loans) |
State Housing Finance Agency Programs
Every state has a Housing Finance Agency (HFA) that administers DPA programs funded by federal and state sources. These are the primary source of DPA in most markets.
How to find your state’s HFA:
- Search “[State name] Housing Finance Agency” or “[State] HFA”
- Or visit hud.gov and search for your state’s approved housing counseling agencies
Examples of state programs (illustrative — check current terms):
| State | Program Example | Assistance |
|---|---|---|
| Texas | Texas State Affordable Housing Corporation (TSAHC) | 3–5% DPA grant or deferred loan |
| California | CalHFA MyHome | Up to 3.5% deferred second mortgage |
| Florida | Florida Assist | Up to $10,000 deferred second at 0% |
| Georgia | Georgia Dream | $10,000 standard DPA; $12,500 for educators/military |
| Illinois | IHDA Access Deferred | $6,000 deferred second |
| North Carolina | NC Home Advantage | Up to 3% DPA; forgivable after 15 years |
| Colorado | CHFA | Down payment assistance second loan |
| Washington | Washington State Housing Finance Commission | Up to 4% in DPA |
These programs combine with the state HFA’s first mortgage product — or, in many cases, with standard FHA/VA/USDA/conventional loans originated by approved lenders.
National Programs
Beyond state programs, several national organizations offer DPA:
NACA (Neighborhood Assistance Corporation of America) One of the most powerful DPA programs available. NACA offers mortgages with no down payment, no closing costs, and below-market interest rates to buyers who complete their counseling process. Requirements include: attending NACA workshops, completing counseling, demonstrating payment history, and living in the home. The process takes longer than a standard mortgage — typically 3–12 months — but the terms can be exceptional for eligible buyers.
Chenoa Fund A national DPA program providing 3.5% or 5% in second mortgage assistance, typically paired with FHA loans. Available through approved lenders nationwide.
Employer-Assisted Housing (EAH) Some large employers offer DPA as a benefit — particularly hospitals, universities, and government entities trying to attract employees to high-cost areas. Check with your HR department.
Local community development financial institutions (CDFIs) CDFIs are mission-driven lenders focused on underserved communities. Many offer DPA grants and subsidized loans. Find CDFIs in your area at cdfi.org.
How DPA Works with Your Primary Mortgage
DPA is always a second layer on top of your primary mortgage — it doesn’t replace it. Here’s how they combine:
Example: $350,000 home, FHA loan + state DPA grant
- FHA loan: $337,750 (96.5% of purchase price)
- Required down payment: $12,250 (3.5%)
- State DPA grant: $12,250 (covers entire down payment)
- Closing costs: ~$9,000 (buyer pays out of pocket or negotiates seller concessions)
- Out-of-pocket at closing: $0–9,000 depending on closing cost coverage
Some DPA programs also cover closing costs. Others only cover the down payment. Read the program terms carefully.
The Process: How to Apply
- Check eligibility using your state HFA’s online tools — enter your income, location, and purchase price to see which programs you qualify for.
- Complete homebuyer education — most programs require this before assistance is issued. It’s typically an online course through Framework or eHome America, costing $75–100.
- Find an approved lender — DPA programs work through a network of approved lenders. Your state HFA’s website lists them. Not every lender participates; don’t assume your current bank is approved.
- Apply for the primary mortgage and DPA simultaneously — the lender handles both applications at once.
- Close — DPA funds are provided at closing, just like any other funds.
Frequently Asked Questions
Is down payment assistance taxable income? Generally no. DPA grants are not considered income for federal tax purposes. Confirm with a tax advisor for your specific situation.
Does DPA affect my mortgage rate? Sometimes. Some programs require using the state HFA’s first mortgage product, which may carry a slightly higher rate than the open market. Others allow you to use any approved lender with competitive rates. Compare the total cost — rate + DPA benefit — to determine whether the program is a net positive.
Can I use DPA with a VA or USDA loan? Many state HFA programs are compatible with VA and USDA loans, though VA loans require 0% down (so DPA would apply to closing costs). Check your specific state HFA’s approved loan products.
What if I need to move before the forgiveness period ends? For forgivable second mortgages, you’ll repay a prorated amount. For example, if you have a $10,000 forgivable loan with a 5-year forgiveness period and you sell at year 3, you typically repay 40% ($4,000). The exact calculation varies by program.
Can I combine multiple DPA programs? Sometimes — called “stacking.” Some states allow combining a state HFA grant with a local city or county program. Not all programs permit stacking; the approved lender can tell you what’s permitted for your purchase.
The Bottom Line
Down payment assistance is not charity — it’s a public policy tool designed to expand homeownership access, funded by government agencies and nonprofits for eligible buyers. Using it is legal, standard practice, and often the difference between buying now and waiting years to save.
The barrier is awareness and complexity, not eligibility. Most buyers who could use DPA don’t pursue it because they don’t know it exists. Now you know.
Next step: Found a program that might work for you? Read How to Get Pre-Approved for a Mortgage to get your application ready.
Sources
- HUD: Homeownership Vouchers and DPA Programs — hud.gov
- National Council of State Housing Agencies: State HFA Programs — ncsha.org
- Down Payment Resource: National DPA Directory — downpaymentresource.com
Disclaimer: DPA program availability, eligibility requirements, and funding levels change frequently. Contact your state HFA or a HUD-approved housing counselor for current program details. HomeFinanceLab.com is not a lender and does not originate loans.
