The ABCs of DPA: Understanding Down Payment Assistance

While it can be more difficult to purchase property when interest rates are high and real estate prices are on the rise, for many prospective homebuyers, the biggest hurdle to homeownership is saving enough money for a down payment. If you dream of buying a home, we want to help make that dream a reality. Whatever the market, our goal is to help you make the most of all the tools available to you on the road to purchasing your first home. If you’re ready to buy and don’t have a 20% down payment, down payment assistance (DPA) might be the perfect option for you.

What is down payment assistance?

In order to offer everyone the chance to become a homeowner, programs have been created to assist homebuyers with funding for part or all of their down payment. Down payment assistance is generally second mortgage secured financing provided by a third party not associated with the transaction that helps with payment and closing costs on your purchase and requires repayment. Grant funds are also an available DPA option that do not need to be repaid. It’s designed for first-time homebuyers, and programs exist for all incomes, not just low-income families.¹

How do you qualify for down payment assistance?

While DPA is typically reserved for first-time homebuyers, your eligibility is determined by a few factors, including your household income, credit history (along with a minimum credit score) and where you live.^1,2,3 Though each state will have its own unique qualifying parameters, generally speaking, you must meet the following criteria:

• Be a first-time homebuyer
• Purchase a primary residence
• Buy within local purchase-price limits
• Select an approved mortgage program
• Work with an approved mortgage lender

There are also organizations that offer down payments to borrowers who belong to certain communities or come from certain backgrounds. These might include teachers, first responders, religious groups, racial minorities or people with disabilities.^{1, 2} One good place to start looking for programs specific to your background and location is the U.S. Department of Housing and Urban Development (HUD), which organizes homebuying assistance programs by state.² You can also look in The Mortgage Reports for qualifying information organized by state.

And even if you’ve owned a home in the past, you’re not necessarily disqualified from receiving DPA. A first-time homebuyer is usually defined as someone who hasn’t owned a home in three years or more.^1,2,3

Down payment assistance programs that can help

DPA can take the form of grants or low-interest loans. Here, we’ll break down how each type of assistance works and what you can expect to repay.^3,4

Grants

• Grants do not need to be repaid
• Typically given to lower-income borrowers or those affiliated with a specific group

Low-interest loans

• Second mortgages that are paid monthly along with your primary mortgage
• These spread your down payment out over a time period, so it’s more manageable to pay off

Forgivable loans

• No interest
• Function as second mortgages that are forgiven over a set number of years 
• These only need to be repaid if you move, sell or refinance too early (usually under five years)

Deferred-payment loan

• No interest
• Second mortgages with deferred payments that only have to be paid when you move, sell or refinance.

Start the process by determining your realistic housing budget using our Mortgage Down Payment calculator. Once you have an idea of your budget, you can start to determine which types of DPA you may qualify for.

Consider the following Flagstar programs for assistance:

• Flagstar Gift Program: Our qualified first-time buyers receive up to 3% of the purchase price or up to $7,500 per transaction for their down payment and closing costs in eligible locations. Properties in New York, New Jersey and California can qualify for up to $15,000 per transaction.
• Flagstar Grant Program: Qualified borrowers receive up to $2,500 in down payment assistance and up to $7,500 if they buy a home through the Detroit Land Bank.
• MSHDA Down Payment Assistance Program: Michigan homebuyers can save on closing costs and get up to $7,500 in a no-interest down payment assistance loan through the Michigan State Housing Development Authority.

Explore our DPA options and call a loan officer at (855) 372-5626.

What are the pros and cons of down payment assistance?^1,2,3

Pros

• It can make homebuying more affordable and attainable
• May result in qualifying for a lower rate of interest
• Some down payments don’t require repayment
• You might be able to avoid paying private mortgage insurance
• You don’t have to wait as long to buy a home

Cons

• The lower down payment and larger home may add financial stress later on
• There may be residency restrictions
• Often comes with strict eligibility requirements
• Slower closing process
• You may be obligated to stay in your home for a pre-specified number of years

Conclusion

Saving for a down payment can be stressful. That’s where down payment assistance can help. And DPA is available to more borrowers than you may think, not just low-income families. Flagstar Bank is here to help first-time homebuyers through the down payment process by offering several assistance programs and advice from experienced loan officers who can help you find the right program to fit your unique needs.