Down payment assistance (DPA) is money that helps a buyer cover the down payment and sometimes closing costs. It comes as a grant, a forgivable loan, or a second mortgage that's repaid later. Most programs run through state housing finance agencies, cities and counties. Most want a minimum credit score (in our group, we use 620 as the floor before we talk DPA), income under a limit, and a homebuyer class. Here's how I teach agents to spot DPA buyers and explain it simply.
The short answer
A lot of renters think they need 20% down. They don't. Many loans need 3% to 3.5%. DPA can cover most or all of that. The buyer still needs a credit score that works, steady income, and usually a little cash. The lender runs the numbers and picks the program. Your job is to qualify the buyer first, then connect them to a lender who does DPA every week.
Step by step
- Ask the money questions first. Credit score (the real number), income and job, cash on hand, any co-borrower. See how to qualify a buyer before the lender.
- 620 or higher? Talk about DPA and book the lender.
- 580 to 619? DPA is harder. FHA with their own 3.5% down may work. Book the lender only if they have real savings.
- Under 580? Don't book a lender call yet. Point them to AnnualCreditReport.com for their free reports. Set a follow-up task in 60 to 90 days.
- Check the programs. Your state housing finance agency is the starting point. In Colorado, that's CHFA. Many cities and counties run their own.
- Check income and price limits. They vary by county and household size.
- Get the class done early. Many programs require a homebuyer education class. Have the buyer take it before they find a house.
- Connect them to a lender who does DPA. Not every lender does. Give two or three names and say the buyer can choose any lender.
A worked example (illustration only)
A buyer looking at a $350,000 home with FHA.
| Without DPA | With an assumed 3.5% DPA second | |
|---|---|---|
| Minimum down payment (3.5%) | $12,250 | $12,250 |
| Paid by DPA | $0 | $12,250 |
| Buyer's cash for down payment | $12,250 | $0 |
| Closing costs | Buyer pays, or seller concession | Buyer pays, or seller concession |
The DPA second may be forgivable, deferred or repaid monthly. Each program is different.
Illustration only. A lender sets the real terms. DPA programs have their own rates, repayment rules, income limits and fees, and a second loan can raise the total monthly cost. This is not an offer of credit. Check current programs at CHFA or your state housing finance agency.
How to explain it to your client
"A lot of people think they need 20% down. Most buyers don't. There are programs that help with the down payment, and some of them never have to be paid back. They usually want a credit score of about 620 or higher, income under a limit, and a short homebuyer class. Let me ask you a few quick questions so I send you to the right lender. They'll tell you exactly which program fits."
Watch-outs
- Don't promise "free money." Some DPA is a loan. Say "help," not "free."
- Second liens matter. A repayable second can affect refinancing and selling. The lender explains.
- Funds run out. Programs can pause when money runs out. Check current status.
- Sellers may need to know. Some DPA adds time to closing. Plan the timeline.
- No credit repair promises. You're not a credit counselor.
- Lender referrals. Say the buyer can use any lender, and follow your brokerage's rules on referrals. Never take anything for a referral. Federal law (RESPA) covers this.
This is training for real estate agents. It isn't legal, tax or lending advice. A licensed loan officer sets terms. Check with your managing broker.
Questions
Is down payment assistance only for first-time buyers?
Many programs focus on them, but some don't. "First-time" often means no ownership in the last three years. Check each program.
What credit score do buyers need?
It varies by program and lender. In our group, 620 is the floor before we talk DPA.
Do buyers have to pay it back?
Depends on the program. Grants, forgivable loans and repayable seconds all exist.
Can DPA cover closing costs?
Some programs help with closing costs too. Seller concessions can also help.
Where can buyers learn more?
Their state housing finance agency and the CFPB's homebuying resources.
Brian Lee Burke is the founder of PadLeaders, a Colorado real estate broker licensed since 2003, team leader of The Kenna Group at Keller Williams DTC (formerly Kenna Real Estate Group) and the author of Mastering Real Estate and The Real Estate Playbook. More about Brian.