Down payment assistance
Know the full cost before you accept help
Down payment assistance can open the door to a home. Some of it comes with strings that can cost you later.
What most lenders won't tell you
Many assistance programs come with a silent second mortgage
Down payment assistance programs vary, but many are structured as a second mortgage that is forgiven only after 20 years. That structure can quietly limit your options for as long as you own the home.
A silent second mortgage
Many programs place a second lien on your home for the assistance amount. It is called silent because there is usually no monthly payment.
Forgiven only after a long time
Some programs forgive the balance only after 20 years of owning the home. If you sell or refinance before then, the balance may be due.
Payback when you refinance
Refinancing generally means paying the assistance back at closing or getting the program's approval to keep it in place.
Often paired with higher rates
Assistance programs are usually paired with a higher interest rate than you could get without them.
The refinance problem
If your assistance is a silent second that is forgiven after 20 years, you generally have to pay it back if you refinance. It can also keep you from using the FHA or VA streamline programs.
That can hurt your ability to lower your payment in the future, especially when interest rates are high, like today. If you buy at a high rate and cannot refinance easily when rates fall, you may be stuck with the payment.
Refinance example
Say your interest rate could be reduced by 1% or 2% just 6 months after you buy. Depending on your loan amount, that could mean upwards of $500 to $800 per month, or more, in savings. With a silent second mortgage, you could miss out on that savings.
A smarter path
Buy today, then streamline to a lower payment
Without a silent second, buying a home today, making six perfect payments and then using a streamline refinance to lower your payment is a great benefit. There is no re-qualifying on income, and the process is much simpler than a standard refinance.
- 1
Buy your home
Close on an FHA or VA loan with a rate and payment that make sense.
- 2
Make on-time payments
Make at least six perfect payments and meet the program's waiting period.
- 3
Streamline refinance
Refinance into a lower payment with limited documentation and no re-qualifying on income.
Although a VA IRRRL does not typically require an appraisal, some lenders add one as an overlay requirement. Ask your lender about their guidelines.
Want to know more?
I would be honored to assist you in achieving your goals.
Alternatives
Other ways to cover your upfront costs
Seller concessions
Negotiate for the seller to contribute toward your closing costs. It reduces the cash you need at closing without adding a second lien.
Gifts from family
Eligible family members can gift funds toward your down payment and closing costs on many loan programs, with proper documentation.
Buy in a USDA eligible area
USDA loans offer 0% down in eligible areas, so you may not need assistance at all.
When assistance makes sense
A down payment assistance program can be a great tool if, without it, you have absolutely no way of purchasing the home because of your income and debt-to-income ratio (DTI). The goal is to choose it with your eyes open.
Questions to ask before you accept assistance
Bring these to any program you are considering, and to me.
- Is the assistance a grant, a forgivable loan or a second mortgage I must repay?
- How many years until it is forgiven, and what happens if I sell or refinance sooner?
- Is the interest rate on my first mortgage higher because of the program?
- Would the assistance stop me from using an FHA or VA streamline refinance later?
- What is my total monthly payment and my total cost over five and ten years, with and without the assistance?
Down payment assistance questions
Program terms vary by state, county and lender. This page is general information, not a commitment to lend or tax or legal advice.