What Is Down Payment Assistance & How Does It Work?

For many homebuyers, saving for a down payment is often the biggest challenge to making the leap from renter to homeowner. The median down payment by first-time buyers was 10%, according to the National Association of Realtors. With median home prices above $400,000 nationally, saving $40,000 or more can be extremely difficult.

A range of programs are designed to help bridge that gap, and more buyers may qualify than they realize. Down payment assistance programs provide funds to help buyers with upfront costs. Available options include loans that may or may not need to be repaid, and grants.

Lenders and program organizers sometimes call down payment assistance "first-time homebuyer" programs, but many are open to repeat buyers. While many buyers assume their income is too high to qualify, requirements vary by market and often allow buyers with higher-than-expected income access to down payment funds. Keep in mind that program details, eligibility thresholds and lender requirements vary widely.

What Is Down Payment Assistance?

Down payment assistance refers to any financial program that helps people buy a home by covering some or all of their upfront costs, including their down payment, closing costs, or both. These programs are funded by a wide array of sources that want to support homeownership. State housing finance agencies, local governments and nonprofit agencies are the most common, but some private lenders and employers also provide funds for down payment assistance.

Even if you have some savings and a good income, you may qualify for more help than you think, particularly in areas with a high cost of living. Despite the widespread options for down payment assistance, just 61% of respondents in a 2025 survey by NeighborWorks America said they were aware of these programs and only 25% of respondents looked into them.

Types of Down Payment Assistance Programs

Whether you have to repay payment assistance depends on the type of program. Grants often do not require repayment (as long as you meet any residency terms). Forgivable loans disappear over time.

Deferred and low-interest loans must eventually be repaid but on favorable terms. The section below explains each type. Depending on your circumstances, you may be able to combine more than one form of down payment assistance during your homebuying process.

For example, your employer may be able to contribute funds, a local government program may have additional money available, and a lender could offer a special loan program.

Assistance amounts vary by program, but many provide between $5,000 and $20,000 — or between 3% and 5% of the average purchase price — toward your down payment, closing costs or both. Down payment assistance programs vary not only by the source of funding, but also in how they work. Here’s how the main types differ:

Grants

Grants provide money that doesn’t need to be repaid, often from government agencies, nonprofit organizations or employers. However, grants are usually reserved for first-time homebuyers with a low-to-moderate income.

One exception to grant programs is that they may require partial or full repayment if you don’t stay in the house for a specified period, often three to five years.

Learn more about homebuying grants using our extensive article about the topic.

Forgivable Loans

A forgivable loan refers to down payment assistance to eligible homebuyers and is sometimes referred to as a second mortgage. These loans typically require staying in the home for a specific number of years such as five, 10 or 20 years, with the loan balance shrinking each year. For example, if your forgivable loan is $10,000 and you’re required to stay in the house for 10 years, you might need to repay $5,000 if you move after five years. The loan is completely forgiven after 10 years in this example.

You’re not usually required to make payments on a forgivable loan, but some programs allow you to make payments if you want to pay down the balance.

For example, the CalHFA Forgivable Equity Builder Loan provided certain borrowers with a down payment loan of up to 10% of a home’s purchase value. This loan was forgiven if the homebuyer stayed in the home for at least five years.

In some cases, you’ll be required to work with a participating lender identified by the program organizer for a forgivable loan.

Deferred Payment Loans (Silent Second Mortgage)

Like a forgivable loan, a deferred payment or “silent” second mortgage is structured as a second mortgage to cover your down payment and sometimes closing costs. With this type of second mortgage, no payments are required until you sell the house, pay off your first mortgage or refinance your mortgage.

These loans are usually offered at 0% interest or a very low interest rate.

Shared Appreciation Loans

A shared appreciation loan is a variation of the silent second mortgage, but with a key distinction: rather than simply deferring repayment of a fixed amount, the lender or assistance provider takes a percentage of your home's appreciation — the increase in its value — when you sell, refinance, or transfer ownership.

Here's how it typically works: you receive down payment assistance upfront, and in exchange, the program collects the original loan amount plus an agreed-upon share of your equity gain when you exit the home.

For example, if a program contributes 20% of your home's purchase price and holds a 20% share of appreciation, and your home increases in value by $100,000, you'd owe the program $20,000 from that gain on top of repaying the original principal.

An example of this loan type if the California Dream for All Shared Appreciation Loan. This program helps first-generation homebuyers with securing funds for a down payment and/or closing costs. In this program, the state contributes up to 20% of the purchase price and receives an equivalent share of appreciation upon sale or transfer.

Shared appreciation loans are increasingly common among state housing finance agencies and nonprofit down payment assistance providers, partly because the structure is self-sustaining: repaid proceeds cycle back into the program to help future buyers. For borrowers, they provide meaningful assistance without monthly payments, but it's important to understand upfront that a portion of your future equity growth will be shared with the program provider when you eventually move on.

Low-Interest Second Mortgages

Another option for down payment assistance is a low-interest second mortgage. Unlike a deferred payment loan, you must make monthly payments starting shortly after you buy your home. That means you will need to budget for two monthly housing payments. However, lenders that offer this option for a second mortgage usually charge an interest rate well below market rates.

The benefit of this repayable down payment assistance is that it reduces your upfront costs.

Who Qualifies for Down Payment Assistance?

Most programs are designed to help renters become first-time homebuyers, but some allow repeat buyers to participate. Even when a program is limited to first-time homebuyers, it’s important to realize that most lenders and down payment assistance funders follow the federal government definition of a “first-time” homebuyer as someone who has not owned a home within the past three years.

While it’s important to check for specific requirements, some common qualifications for programs include:

• Income at or below a percentage of area median income (AMI), often below 80% for low-income households and up to 120% for moderate income households. AMI is updated annually by location.
• Minimum credit score, often 620 or 640 and above.
• Purchase price within program limits, usually based on median home prices in the area.
• Property located in a specific geographic area, often targeted for redevelopment.
• Home must be the primary residence for the buyer, not an investment property or second home.
• Financing with a 30-year fixed-rate loan, either a conventional mortgage or an FHA loan.
• Use of a participating lender. Organizations train lenders in the details of their programs and list them on their sites.
• Homebuyer education. Often offered online, these programs provide information to prepare buyers for the cost and responsibility of homeownership.
  

Can Down Payment Assistance Help with Closing Costs Too?

Many programs cover both your down payment and your closing costs. Closing costs often range from 2% to 6% of the purchase price of the home but can be more depending on the situation.

Are There Downsides to Down Payment Assistance?

While reducing your upfront costs and getting assistance — or at least borrowing at an extremely low rate — sounds perfect, there are some potential negatives to consider. For example:

• Using down payment assistance requires extra paperwork and can sometimes lengthen the time between your accepted offer and your closing. Because of this extra time, some sellers may be less likely to accept your offer in a competitive market.
• If you have two loans that need repayment, that may possibly raise your monthly borrowing costs. However, that can be offset if your down payment total is at least 20% of the purchase price, since that avoids private mortgage insurance. Reaching a 20% down payment also means your monthly payment will be lower for the life of the loan, which can more than offset the cost of a small repayable second mortgage.
• You may be required to repay the assistance if you must move early.
• Some programs put a second lien on your home, which will reduce your proceeds when you sell your home.
• Many programs restrict which lenders you can work with and require you to use a participating lender.
• Not all down payment assistance programs work with every loan type. For example, some require borrowers to use an FHA loan instead of a conventional loan.
  

How Do I Find and Apply for a Down Payment Assistance Program?

When you start to think about buying a home, a helpful first step is speaking with a lender to find out how much you might be approved for. But keep in mind that you should plan your finances carefully – being approved for a certain amount does not always mean it’s financially sustainable for your specific situation.

When looking for down payment assistant programs, be wary of scammers. You can help protect yourself by sticking to official government websites. For example, California offers down payment assistance through the California Housing Financing Agency. If a lender has an assistance program, be certain you are using its official website when applying for them.

You can also check your city or county website for homeownership programs. Ask your employer about any down payment assistance programs. If you’re a teacher, a first responder or a local government employee, you may also be eligible for a homeowner program.

Reach out to an RBC U.S. Mortgage loan officer today to learn more about what your down payment options might be.