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How do down payment assistance programs work?

The help comes through state housing finance agencies as well as city and county government programs aimed at meeting affordable housing needs. Often the programs are offered in combination with mortgages geared to first-time home buyers.

The types of closing cost and down payment assistance vary by program. Common forms of assistance include:

• Grants. Some programs provide an outright gift of money.

• Zero-interest, forgivable loans. The loans are forgiven over a certain period, such as five years. The money doesn’t have to be repaid as long as the borrower still owns and lives in the home after the period is over.

• Zero-interest, deferred-payment loans. Terms and conditions vary, but generally no payments on the down-payment and closing-costs loan are due until the home is sold, the mortgage is refinanced or the mortgage reaches the end of the term.

• Low-interest loans. The loans must be repaid over a certain period, such as 10 years. They make homeownership more attainable by spreading the down payment and closing costs over multiple years.

» MORE: What down payment is required?

Who can get down payment assistance?

Most down payment assistance programs are for first-time buyers, but don’t count yourself out if you’ve ever owned a home. The programs typically define a first-time buyer as one who hasn’t owned a home for the past three years.

Some local programs target certain groups, such as teachers, police officers, emergency responders or city employees, while others are open to qualified repeat buyers.

The requirements for each program vary, but besides being a first-time home buyer, you typically must:

• Take a home-buyer education course.

• Meet income limits. Many programs are geared to low- and moderate-income residents, so a borrower’s household income must be below a certain threshold.

• Purchase in an approved location.

• Stay below the maximum home purchase price, which is usually a percentage of an area’s median home purchase price.

• Contribute some of your own money toward the purchase.

How to apply for mortgage down payment assistance

Here's how to get started:

• Explore assistance programs offered by your state’s housing finance agency. See first-time home buyer programs by state to learn about programs where you live.

• Check with your city and county to see if they offer any local grant programs for first-time home buyers. For example, three dozen Texas first-time home buyer grant programs are offered in cities and counties across the Lone Star State.

• Visit the website of the local government agency or organization administering the program to learn about down payment assistance requirements and to get a list of approved mortgage lenders.

• Apply for a mortgage with a lender who is approved to work with the grant program. Local agencies may be able to recommend loan officers who have experience helping people apply for the grants they administer.