I was reviewing our project pipeline last month, and I realized something that honestly frustrated me. We're seeing tons of potential home buyers who could absolutely afford monthly mortgage payments but keep getting stuck at the same place—the down payment. And yeah, I get it. Even though FHA loans only require 3.5% down (which sounds pretty manageable), when you're looking at a $300,000 home, that's still $10,500 you need upfront. Plus, closing costs. Plus, maybe some reserves. It adds up fast.
Here's the thing that keeps coming back to me from my Master’s of Social (MSW) coursework: we talk a lot about systemic barriers to economic stability, and this down payment hurdle is a perfect example. You've got families who've proven they can manage money, who've never missed a rent payment in years, but they're stuck because saving $10,000 while paying rent feels nearly impossible. That's where FHA down payment assistance comes in, and honestly, more people need to know these programs exist.
Let me simplify this for you: FHA down payment assistance isn't one giant federal program. It's actually a patchwork of over 2,600 different programs across the country, offered by state housing agencies, local municipalities, and nonprofit organizations. According to Down Payment Resource's Q3 2025 Homeownership Program Index, we're at an all-time high with 2,624 programs nationwide, with 70 new programs added just in the third quarter.
The average benefit? About $18,000, per Down Payment Resource's latest data. That's enough to cover your entire down payment on most home purchases, and often closing costs too. And yeah, that's legitimately life-changing for a lot of families.
Think of it like this: an FHA loan is like having a friend vouch for you. The Federal Housing Administration doesn't actually lend you money—they insure your loan, which means they promise to pay your lender back if something goes wrong. This insurance makes lenders way more comfortable offering loans to people with lower credit scores or smaller down payments than they'd normally accept.
According to the U.S. Department of Housing and Urban Development's FHA Single Family Housing Policy Handbook, if your credit score is 580 or higher, you can qualify for an FHA loan with just 3.5% down. If you're in the 500-579 range, you'll need 10% down. Most lenders (including AmeriSave) typically look for at least a 580 credit score, though requirements can vary.
Now here's where it gets interesting: FHA is totally fine with you using down payment assistance programs. In fact, they actively encourage it. The textbook answer is that you need to come up with your down payment from "acceptable sources," but really, that includes a whole range of assistance programs—grants, forgivable loans, deferred payment loans, even matched savings programs in some cases.
Let me break this down with actual numbers so you can see where you stand. According to FHA guidelines, here's what you're looking at:
Minimum down payment: 3.5%
On a $250,000 home: $8,750 down
On a $350,000 home: $12,250 down
On a $400,000 home: $14,000 down
Minimum down payment: 10%
On a $250,000 home: $25,000 down
On a $350,000 home: $35,000 down
On a $400,000 home: $40,000 down
Yeah, that's a pretty substantial jump if your credit's below 580. Which is why, and I'm gonna be straight with you, it's often worth taking a few months to improve your credit score before applying. Just paying down some credit card balances or fixing errors on your credit report can make a $15,000+ difference in what you need upfront.
This still surprises me every time I see the numbers. Down Payment Resource tracks these programs, and Q3 2025 hit a record: 2,624 programs across all 50 states. That's up from 2,554 in Q2 and 2,509 in Q1. We're talking about 172 new programs added just in the past year.
Here's what this means for you practically: no matter where you live, there are multiple programs you could potentially qualify for. It's not like there's one program and if you don't meet those exact criteria, you're out of luck. There are programs for different income levels, different professions (teachers, healthcare workers, public safety), different locations, different property types—the variety is honestly pretty remarkable.
And municipalities are the biggest players here. According to Down Payment Resource's data, 39% of programs come from local cities and counties, with nonprofits providing 21% and state housing finance agencies another 18%. This decentralized approach means programs can be tailored to what each community actually needs.
When we acquired our current process management system a couple years back, one of the first things I learned was how many people self-disqualify from programs because they misunderstand the requirements. The definition of "first-time home buyer" in most programs is way more flexible than people realize.
You've never owned a residential property, OR
You haven't owned residential property as your principal residence during the past 3 years, OR
You owned a home that wasn't permanently attached to a foundation (like a mobile home without land)
You owned a property that didn't meet building codes and would cost more to fix than rebuild
You're a single parent or displaced homemaker who only owned a home with an ex-spouse
That middle one, the 3-year rule, is huge. If you sold your house four years ago and have been renting since, congrats, you're a first-time buyer again for program purposes. I've seen so many people miss out on assistance because they assumed they wouldn't qualify, but actually, once we looked at their situation, they were totally eligible.
Down Payment Resource's Q3 2025 data shows 1,557 programs specifically for first-time buyers. But here's the thing: there are also 867 programs that don't have that requirement at all. Don't assume you're disqualified without actually checking.
Okay, I'll admit, when I first started learning about these programs, I thought the income limits would be impossibly low. Like, maybe $40,000 for a family or something? Turns out, I was way off.
Most programs use Area Median Income (AMI) as their benchmark, and they typically set limits at 80-120% of AMI. What this means in practice varies wildly by location. According to the U.S. Department of Housing and Urban Development's 2025 income limits, a four-person household can earn $80,000-$120,000 in many markets and still qualify for programs set at 80-120% AMI, with higher limits in expensive coastal areas.
Down Payment Resource's Q3 2025 data shows 2,269 programs have income restrictions (that's 86% of all programs), but 240 programs have no income limits at all. And income limits have actually been loosening—the number of no-income-limit programs grew 3% from Q2 to Q3 2025, which suggests programs are trying to reach more moderate-income buyers who still need help with upfront costs.
Let's do some real math here, because this is where down payment assistance goes from "nice to have" to "completely game-changing."
Required down payment (3.5%): $10,500
Estimated closing costs (4% average): $12,000
Total cash needed: $22,500
Your out-of-pocket: $4,500
Reduction in upfront costs: 80%
That's the difference between needing to save for years versus potentially being ready to buy this year. And yeah, I know that example uses round numbers and every situation is different, but the principle holds: DPA dramatically reduces the biggest barrier to homeownership for most buyers.
Here's what this means in practice: you'll have your main FHA loan (your first mortgage), and then the down payment assistance sits behind it as a second lien on your property. According to Down Payment Resource's Q3 2025 data, 1,464 programs (56% of all programs) are structured as second mortgages.
But, and this is important, most of these second mortgages aren't like a regular loan where you're making monthly payments from day one.
Deferred Payment Loans: You don't pay anything monthly. The loan only comes due when you sell, refinance, or move out. About half of all programs use this structure.
Forgivable Loans: These are my favorite because here's how it all fits together: you make your regular mortgage payments, stay in the home for a set period (often 5-10 years), and the entire second mortgage gets forgiven. According to Down Payment Resource, 1,024 programs (53%) offer partial or full forgiveness. The loan essentially disappears if you meet the requirements.
Low-Interest Loans: You make small monthly payments, but at a much lower interest rate than your primary mortgage. These are less common but still available in many areas.
At AmeriSave, when we're working with borrowers using DPA, we make sure they understand exactly which type they're dealing with and what the long-term implications are. Because yeah, there's a big difference between a loan that's forgiven after 5 years of occupancy versus one you'll need to repay when you eventually move.
This one catches people by surprise, but it's actually super valuable. Most DPA programs don't just say "down payment only"—they typically allow the funds to be used for closing costs as well. According to the Consumer Financial Protection Bureau's mortgage closing cost data, total closing costs typically range from 2-5% of the home's purchase price, which includes lender fees, title services, appraisal, credit reports, and prepaid items.
On a $300,000 home, we're talking $6,000 to $15,000 in closing costs. These include things like:
Appraisal fees ($400-600)
Title insurance and search
Recording fees
Lender fees
Prepaid property taxes and insurance
FHA upfront mortgage insurance premium (1.75% of loan amount)
If you've got $18,000 in DPA and only need $10,500 for your down payment, that extra $7,500 can go toward closing costs. This flexibility is huge because it means you might not need to bring any cash to closing at all, beyond maybe a small earnest money deposit.
According to the U.S. Department of Housing and Urban Development's 2025 FHA loan limits, here's what you're working with:
Standard Limit (Most Counties): $524,225 for a single-family home
High-Cost Areas: Up to $1,209,750 for a single-family home
Your Specific Area: You can check your county's exact limit using HUD's lookup tool
This matters for DPA because many programs also have maximum purchase price limits. If you're buying in a high-cost area, you need to make sure both the FHA loan limit and the DPA program limit work for your target price range.
In most mid-sized markets, the standard limit covers the majority of homes people are looking at. But in expensive coastal markets, those high-cost limits become absolutely critical for making homeownership possible.
I'll be honest, when I first heard that some DPA programs require you to complete a home buyer education course, my initial thought was "ugh, another hoop to jump through." But then I actually went through the curriculum when we were evaluating our process for guiding first-time buyers, and it genuinely changed my perspective.
Budgeting for homeownership (beyond just the mortgage payment)
Understanding your credit and how to improve it
The mortgage process from application to closing
How to maintain a home and budget for repairs
Avoiding foreclosure if you hit financial difficulties
The human side of this, which is something we talk about a lot in my MSW program, is that home buyer education significantly reduces default rates. When people understand what they're getting into and have tools to handle financial stress, they're much more likely to successfully keep their homes long-term.
According to research from the Urban Institute's Housing Finance Policy Center, borrowers who complete home buyer education courses show improved mortgage performance and are less likely to become delinquent compared to those without such training. So yeah, it's a requirement for many programs, but it's one of those requirements that actually helps you.
Here's something I wish more people understood upfront: not every lender works with every DPA program. Some lenders don't accept assistance programs that:
Require the lender to be an approved participant
Involve liens that take priority over the first mortgage
Use matched savings structures (where an agency matches your savings)
Come from certain state housing finance agencies
This doesn't mean these programs are bad, it just means you need to make sure your lender and your chosen DPA program are compatible before you get too far into the process. At AmeriSave, our loan officers can help you identify which programs we work with in your area, which honestly saves everybody a lot of time and frustration.
I've seen situations where someone applied for DPA, got approved, was super excited, and then found out their lender wouldn't accept that particular program. They had to either find a different lender (which delays everything) or find a different DPA program and start over. Do yourself a favor and confirm compatibility early.
FHA is really flexible about accepting gift funds to help with your down payment and closing costs. According to HUD guidelines, acceptable gift donors include:
Parents, grandparents, or other family members
Your employer or labor union
Close friends with a clearly defined relationship
Charitable organizations
Government agencies providing assistance
A gift letter stating the amount, the relationship between you and the donor, and explicitly saying the funds don't need to be repaid
Proof of the transfer (bank statements, deposit slip, or wire confirmation)
Documentation of where the donor got the funds (their bank statements)
This is different from a loan from family. With a gift, you truly don't have to pay it back, and it doesn't count against your debt-to-income ratio. If you borrow money from family, that monthly payment would count in your DTI calculation and could affect your loan qualification.
According to the National Association of Realtors' 2024 Home Buyer and Seller Generational Trends Report, 26% of first-time buyers received a gift or loan from relatives or friends to help with their down payment, with the assistance being most common among younger buyers.
This is where things get a bit messy, and honestly, it's one of the frustrations I deal with regularly in project management. Unlike your FHA loan application, which follows a pretty standardized process, DPA programs each have their own timelines and procedures.
Are first-come, first-served with limited annual funding (might run out mid-year)
Require you to apply before you even start house hunting
Need applications submitted within a specific funding cycle
Take 3-6 weeks to approve and disburse funds
Require completion of home buyer education before you can even apply
Available year-round with consistent funding
Allow you to apply during your mortgage process
Provide faster approval (sometimes within 1-2 weeks)
More flexible on timing
The key is starting early. Like, way earlier than you probably think. If you know you want to buy a home within the next 12 months, start researching DPA programs now. Six months before you plan to make an offer is probably ideal for most programs.
Okay, so I've told you these 2,624 programs exist, but where do you actually find them? Let me give you the practical resources:
HUD's Nonprofit Directory
The U.S. Department of Housing and Urban Development maintains a directory of approved nonprofit organizations offering DPA. This is particularly important for FHA loans because if your DPA involves a second lien, HUD requires it come from an approved nonprofit.
State Housing Finance Agencies
Almost every state has a housing finance agency that runs DPA programs. Just Google "[your state] housing finance agency" and you'll find it. These agencies often have multiple programs with different eligibility requirements.
Local Municipality Programs
Check with your city or county government. Since 39% of programs come from municipalities according to Down Payment Resource's data, there's a good chance your local government offers something. Many people have no idea their own city offers $10,000-$15,000 in down payment assistance for qualifying buyers.
Your Lender
This is honestly where I'd start if you're already working with AmeriSave or another lender. They know which programs they accept, which programs have funding available, and which ones match your situation. We guide our borrowers through the programs we've vetted and know work smoothly with our process.
Down Payment Resource Database
While this is technically a professional tool for lenders and real estate agents, many local programs are listed on DPA provider websites that you can find through a simple search.
Let's work through a complete example so you can see how all of this comes together. I'll use a realistic scenario based on what we see pretty frequently.
Home price: $285,000
Your credit score: 640
Household income: $78,000
Current rent: $1,650/month
Savings available: $8,000
FHA down payment needed (3.5%): $9,975
Closing costs (estimated 4%): $11,400
Total cash needed: $21,375
Problem: You only have $8,000 saved
Shortfall: $13,375
Down payment: $9,975 (covered by DPA)
Closing costs: $11,400 (partially covered by DPA)
DPA covers: $15,000 total
Remaining closing costs: $6,375
Your savings: $8,000
Cash left after closing: $1,625
So instead of being $13,375 short and needing another 2-3 years to save, you're able to buy now and still have a small cushion left over.
Loan amount: $275,025 (purchase price minus down payment)
FHA interest rate: ~6.5% (market rate as of November 2025)
Principal and interest: $1,739
FHA mortgage insurance: ~$220/month
Property taxes: ~$237/month (estimated)
Homeowners insurance: ~$120/month
Total: $2,316/month
Yes, that's $666 more than your current rent. But you're building equity instead of paying a landlord, and, this is important, you're not stuck waiting years until you save another $13,000+ while rent prices keep climbing.
After working with our team on hundreds of these transactions, I've seen the same mistakes keep popping up. Here's what to watch out for:
Thinking You Make Too Much Money
Unless you're making well over six figures, you probably qualify for at least some programs. Check first, don't assume.
Believing All DPA Requires Immediate Repayment
Most programs are either forgivable or deferred. You're not taking on another monthly payment in most cases.
Skipping the Preapproval Process
You need to know where you stand with FHA qualification before spending time on DPA applications. Get preapproved first.
Not Reading the Fine Print on Forgiveness Requirements
That "forgivable after 5 years" loan might require you to live in the home continuously for 5 years. If you think you might need to move for work in 3 years, that changes things.
Applying to Only One Program
With 2,600+ programs out there, apply to multiple. Different programs have different approval criteria, funding availability, and timing.
Forgetting About Seller Concessions
FHA allows sellers to contribute up to 6% of the purchase price toward your closing costs. Combined with DPA, this can sometimes mean you need very little out of pocket.
Not Considering the Total Monthly Payment
Yes, DPA helps you buy sooner, but make sure you can actually afford the monthly payment. Run the numbers carefully with your loan officer.
Look, I'm not gonna sit here and tell you this is automatically the right choice for everyone. It depends on your specific situation, your timeline, and what programs you qualify for. But here's how I'd think through the decision:
You can comfortably afford monthly mortgage payments but the down payment is your barrier
You plan to stay in the home for at least the forgiveness period (often 5 years)
Your credit score is 580+
You have time to complete home buyer education and navigate the application process
The home you want to buy is within FHA loan limits for your area
You Might Want to Consider Alternatives If:
You have 20% to put down and excellent credit (conventional loans might offer better terms)
You're buying a fixer-upper that won't meet FHA property standards
You plan to move within 2-3 years (forgivable DPA might not make sense)
You're extremely debt-averse and uncomfortable with the second lien structure
You need to close very quickly (DPA can add time to the process)
We help buyers look at all their options at AmeriSave so they can find the one that works best for them. Sometimes it's an FHA loan with DPA, sometimes it's a regular loan, and sometimes it's looking into VA or USDA loans. The goal isn't to sell you a certain product; it's to help you buy a home you can afford to keep for a long time.
If you've read this far, you're probably really thinking about whether FHA down payment help could work for you. Here's what you need to do:
Step 1: Get your credit report and check your credit score. If your score is less than 580, you should work on raising it before anything else. You're good to go if you're over 580.
Step 2: Figure out how much you can really afford to pay each month. Don't just look at the principal and interest. If you have to, add FHA mortgage insurance, property taxes, homeowners insurance, and HOA fees.
Step 3: Look into DPA programs that are available in your area. Check with your state's housing finance agency, your local municipality's website, and see what HUD-approved nonprofits are in your area.
Step 4: Find a lender, like AmeriSave, who works with FHA and DPA programs. Get preapproved so you know exactly where you stand. Find out which DPA programs they accept and which ones have money available right now.
Step 5: If you need to learn about buying a home, sign up now. Do this while you're still looking for a house, not after you've found one.
Step 6: Get your paperwork together ahead of time. Having all of your pay stubs, tax returns, bank statements, and proof of employment ready will speed up the process once you find a house.
Step 7: Find a real estate agent who knows how to work with FHA and DPA. They'll know how to think about timelines and help you find homes that meet FHA standards.
The right answer is that buying a home is a big choice that needs a lot of thought. But really? If you can make the monthly payments and DPA can help you get over the down payment hurdle, you might be able to build equity and keep your housing costs stable instead of watching your rent go up every year. That's a pretty good base for being financially stable in the long term.
Are you ready to look into your options for help with your down payment? Get in touch with an AmeriSave Home Loan Expert who can help you figure out which programs are available in your area and which one will help you become a homeowner.
Depending on the program, the timeline can be very different. For example, some municipal programs take 1 to 2 weeks, while state housing finance agency programs take 6 to 8 weeks. Starting early is important because first-come, first-served programs may run out of money in the middle of the year. Before you can apply for many programs, you have to take a home buyer education class. This can take 8 to 16 hours, depending on whether you take the class online or in person. Usually, the application needs proof of income, tax returns, bank statements, and sometimes letters explaining why you have credit problems. You should start looking into programs 6 to 12 months before you plan to make an offer on a home. You should also finish any required education courses early and have all of your financial paperwork in order and ready to send in when applications open.
In general, no. Most programs don't let you stack help from more than one DPA source because each program usually pays for the full down payment amount that it was meant to cover. You can often combine DPA with other resources that aren't DPA programs, like employer assistance benefits that some companies offer to help their employees buy homes, gift money from family members (since FHA allows gifts from approved sources), seller concessions up to 6% of the purchase price that can cover closing costs, and Individual Development Accounts in some cases. The rules for each program are different, so you should read the fine print carefully and ask your loan officer which combinations are okay. Some programs say you can't get help from anyone else, while others only care that the total amount of help you get stays within certain limits.
It all depends on what kind of program you used. If you sell before the forgiveness period ends on a forgivable loan, you usually have to pay back the full amount or a prorated amount based on how long you lived there. For instance, a 5-year loan that you can forgive might forgive 20% each year. If you sell after 3 years, you would have to pay back 40% of the original amount of help. If you have a deferred payment loan, you have to pay back the full amount when you sell, refinance, or move the property, no matter how long you lived there. The help is basically due at that point. If you sell early, you usually don't have to pay back grant programs that don't require repayment. However, some may have minimum occupancy requirements. Before you accept any DPA, make sure you know how you will pay it back and how long you plan to stay in the house. If you might have to move for work in a few years, think about how much you'll have to pay back when deciding if that program is a good fit for your finances.
Yes, for sure. Down payment help doesn't get rid of credit requirements; it just helps with the cash you need up front. To get an FHA loan, you need a minimum credit score of 580 for the 3.5% down payment option or 500-579 for the 10% down payment option. However, most lenders, including AmeriSave, set their own minimums higher, usually around 620, to lower their risk. Lenders look at more than just your score. They also look at your credit history, including your payment history, which shows that you've been responsible with credit accounts; your debt-to-income ratio, which needs to be below 43% (FHA allows up to 50% with compensating factors); recent credit inquiries and new accounts, which can be red flags; and any bankruptcies or foreclosures, which require you to wait a certain amount of time before you can qualify. A lot of DPA programs have their own credit requirements that may be stricter or less strict than the FHA's minimums. You have time to fix your credit while you look into and apply for DPA programs, which is good news. Before you officially apply for your mortgage, you can raise your score by paying off credit card debt, disputing mistakes on your credit report, and not applying for new credit.
Yes, for sure. You can still get FHA loans and DPA programs even if you work for yourself, but the paperwork is more complicated than it is for W-2 employees. If you own more than 25% of a business, you will usually need to show two years' worth of personal tax returns, including all schedules and forms. You will also need to show two years' worth of business tax returns, a year-to-date profit and loss statement for the current year, a business license, and proof that you have been self-employed in a similar field for at least two years. Lenders will look at your average income over the last two years to see what you can afford. This means that if your income has been going up, you might be able to afford more than you thought. If your income has been going down, that could lower the amount you qualify for. Many DPA programs use the same ways to figure out how much money you make, so as long as your average income over the past two years is within their limits, you can apply even if you work for yourself. The most important thing is to keep good financial records and have at least two full years of tax returns showing that you made money in your field. Most mortgage programs won't let you apply until you have more proof of your work history if you've only been self-employed full-time this year.
Yes, and these programs have grown a lot. Down Payment Resource's Q3 2025 data shows that there are now 68 programs just for teachers across the country. Many of these programs offer $10,000 to $25,000 in help with good terms for forgiveness. There are 52 programs just for healthcare workers, including nurses. However, many general DPA programs also give healthcare professionals priority. In different states and cities, there are 45 specialized programs that public safety workers like firefighters, police officers, and emergency responders can use. There are 45 programs just for veterans and 35 programs just for active-duty military. Many veterans also qualify for VA loans, which don't require a down payment. These programs for specific jobs often have better benefits and more flexible income limits because communities know how important it is to help essential workers buy homes where they work. Some programs are run by the municipalities themselves as workforce housing initiatives, while others are run by nonprofits that help public servants. If you work in one of these fields, make sure to look for programs that are specific to your field as well as general DPA options. You might be able to get a lot better help than the average buyer.
This is a situation that clearly makes things more difficult, but here's how it usually goes: most DPA programs and FHA lenders need to confirm your employment right before closing, usually within 10 days of your closing date. If you've lost your job by then, your loan approval will probably be taken away and the deal won't close. If you lose your job after getting DPA approval but before getting final loan approval, you need to tell your lender right away because your debt-to-income ratio has changed and you may not be able to get the loan amount you were approved for. Some DPA programs have recapture clauses that say if you don't close on a home within a certain amount of time, you lose the help and have to reapply later. But if you lose your job very early on, get a new one quickly, and can show 30 days of pay stubs from the new job, you might be able to keep going. Some programs, though, require you to have been employed for a certain amount of time before closing. The sad truth is that having a stable job is a big part of getting a mortgage. If that changes, it could stop you from buying a home. That's why it's so important to have an emergency fund and a steady job before you start looking for a home. One of the most common reasons deals fall through right before closing is that the buyer loses their job.
How much your monthly payment goes up or down depends on the type of assistance program you use. With forgivable loan programs, you don't have to make monthly payments on the second mortgage as long as you meet occupancy requirements. It just sits there until you pay it off or until you sell or refinance early, which starts the repayment process. There is usually no monthly payment with deferred payment plans either. When you sell, refinance, or pay off your first mortgage, you only have to pay the full balance. With a second mortgage with low interest rates and monthly payments, you'll have to make an extra payment on top of your first FHA mortgage payment. However, the interest rate is usually lower than the rate on your first mortgage, and the payment might be small, like $100 to $200 a month, depending on the amount. Your monthly payment won't change at all if you get a grant that doesn't have to be paid back. You can keep the money as long as you meet the initial eligibility requirements. Before you sign any DPA, you need to know exactly how much your total monthly housing payment will be. This includes both mortgages, if you have them, as well as property taxes, insurance, and HOA fees. This will help you make sure you can really afford the home in the long run. Don't let the excitement of getting help with your down payment cloud your judgment about whether the total monthly payment is within your budget.
In most cases, yes, but your DPA program structure could make things more complicated and important to think about. If you have a forgivable loan DPA that hasn't been fully forgiven yet, refinancing usually means you have to pay back the rest of the money right away because it pays off both your original first mortgage and the second lien at the same time. If you're close to the end of the forgiveness period, like four years into a five-year period, it might be better to wait a year so you don't have to pay back $20,000 worth of help just to get a lower interest rate. When you refinance with deferred payment DPA, you usually have to pay off the second mortgage right away. This means you have to either roll that amount into your new loan or pay it out of pocket. This could make your new loan a lot bigger and change whether refinancing really saves you money. Some DPA programs let you subordination, which means that the second lien stays behind your new refinanced first mortgage. However, not all programs offer this option, and not all lenders accept it. Before refinancing, talk to your DPA provider to find out what their rules are about subordination and repayment. Then, talk to your lender about the numbers to see if refinancing still makes sense after you factor in any DPA repayment. If you're close to full forgiveness on a forgivable loan program, you might want to wait.
These are two very different types of financial tools that help with different problems that come up when you own a home. FHA down payment assistance helps you buy a home by giving you the money you need for the down payment and closing costs up front. This gets you past the first hurdle to homeownership when you don't have enough savings. If you have less than 20% equity in your home, you will have to pay for private mortgage insurance or FHA mortgage insurance every month. This protects the lender. It lowers the lender's risk, which is what makes low-down-payment loans possible. When you get an FHA loan, you have to pay both an upfront mortgage insurance premium at closing (currently 1.75% of the loan amount) and annual premiums paid monthly (which depend on the size of your loan and down payment and range from 0.15% to 0.75% of the loan amount). If you don't put down at least 10% on an FHA loan, you'll have to pay FHA mortgage insurance for the rest of the loan. You can only get rid of it by refinancing into a regular loan after you have 20% equity. You can stop paying the monthly mortgage insurance after 11 years if you put down 10% or more with an FHA loan. So, down payment help helps you buy the house in the first place, while MIP or PMI strategies help you lower your monthly costs after you've already bought it. Some buyers use DPA to buy a home with only 3.5% down. Then they work on building equity quickly so they can refinance out of FHA insurance and into a conventional loan in a few years. This is one way to keep costs low over the long term.
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