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Down Payment Assistance: Grants, Second Loans, Eligibility

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Grants, forgivable seconds, and deferred seconds can cover a down payment. Eligibility, income limits, and repayment vary by program.

Published: 2026-10-19

Key takeaways

  • A grant has no note to repay. A second loan is a lien. Forgiveness or a long deferral is a term of that loan, not a feature of every assistance dollar.
  • HUD's HOME program sends formula grants to states and localities, which can use them for homeownership. You apply through the local program.
  • Fannie Mae lets many of the same providers fund a grant or a Community Seconds subordinate loan. If both the second loan and the first mortgage set an income limit, the stricter limit applies.
  • Fannie Mae does not let a seller's interested-party contribution cover your down payment.
  • If you sell or move early, a deferred or forgivable second can come due. Read that clause before you take the funds.

Published: 2026-10-19

Down payment assistance is money from a government agency, a housing finance agency, a nonprofit, an employer, or a similar source that helps pay the down payment or closing costs. A grant is help you do not repay. A second loan may be deferred or forgiven only if you follow that program's rules.

There is no single national program with one income cap and one dollar amount. HUD points buyers who need down payment help to state and local programs. You start with your state housing finance agency, then read that program's own terms.

How is a grant different from a second loan?

A grant covers costs without a balance to repay, as long as you met the rules to receive it. Fannie Mae's assistance page lists grants from employers, municipalities, states, counties, state or local housing finance agencies, nonprofit organizations other than credit unions, federal agencies, regional Federal Home Loan Banks, Native American tribes and their sovereign instrumentalities, or lenders under specific conditions. The detail is in Selling Guide B3-4.3-06.

A second loan is money you still owe. The provider records a lien behind the first mortgage. Fannie Mae says Community Seconds can come from many of the same sources as grants, but a second lien or other document enforces the program rules. Fannie Mae does not buy the Community Seconds loan. It can buy the first mortgage in front of one.

Selling Guide B5-5.1-02 (May 3, 2023) says a Community Seconds loan can fund all or part of the down payment, closing costs, renovations, or a permanent rate buydown. The down payment piece cannot be funded through the first mortgage, such as by premium pricing. Some programs do not advance cash. They record a lien for the gap between market value and a reduced sales price. Fannie Mae says that lien typically has deferred payments and may be forgiven.

Acceptable repayment shapes include fully amortizing monthly payments, payments deferred for a while and then amortizing, payments deferred until you pay off the loan or sell, or debt forgiven over time. The program picks one. The note you sign controls.

A family gift is a separate path. Fannie Mae treats an acceptable gift as another way to cover upfront costs under Selling Guide B3-4.3-04. A gift is not a housing-agency program.

Who is eligible, and who sets the income limit?

The agency that holds the funds writes the income limit, the price limit, any first-time buyer test, and any education rule. A state housing finance agency and a city program can use different caps for the same block.

HUD's HOME Investment Partnerships Program is the largest federal block grant to state and local governments designed exclusively to create affordable housing for low-income households. Funds go each year to participating jurisdictions. Communities, often with nonprofits, can use them to build, buy, or rehabilitate affordable housing for rent or homeownership, or for direct rental assistance. HUD says states and local governments may use HOME funds for grants, direct loans, loan guarantees or other credit enhancements, or rental assistance or security deposits. You apply to the participating jurisdiction or its partners.

Fannie Mae's income rule for Community Seconds is a comparison, not a national cap. If the provider and the first mortgage both set an income limit, the more restrictive limit applies. A first mortgage such as HomeReady can add its own income rules. Eligible providers are a federal agency, a state or local government, a housing finance agency as defined in 24 C.F.R. 266.5, a 501(c)(3) nonprofit, a regional Federal Home Loan Bank under an affordable housing program, an employer, a lender only for an employer-guaranteed affordable program, or an Indian tribe on the Secretary of the Interior's current list. The provider must not be the property seller or another interested party, except for a shared-equity or sweat-equity program.

The down payment you still need depends on the first mortgage. Some conventional loans start at 3% down before assistance. That structure is in how much down payment you really need and how 3% down mortgages work.

What if you sell or move early?

Read the second-loan note for the trigger. A deferred loan can stay quiet while you live in the house and come due when you sell, refinance, or move out. A forgivable loan often forgives a slice for each year you occupy the home, and the rest is due if you leave early. Fannie Mae allows forgiveness over time and full deferral until payoff or sale. The agency's recapture rules can be stricter, and the note binds you.

If your employer provides the Community Seconds loan, Fannie Mae says the terms may require full repayment if the job ends before maturity, voluntarily or not, other than for reasons related to disability.

A long deferral is not automatically ignored in underwriting. If repayment is deferred for five years or more, Fannie Mae does not require the lender to include a monthly payment in the debt-to-income ratio. If repayment starts sooner, the lender must include the payment that will be due after the deferral. The second loan must be fixed-rate, and its rate may not be more than 2 percentage points above the first mortgage's initial note rate. Interest charged only as a default penalty sits outside that cap.

The first mortgage must be fixed-rate, or an ARM with an initial fixed period of five years or more. The transaction is a purchase or a limited cash-out refinance. The home is a one- to four-unit principal residence. Maximum combined loan-to-value with a Community Seconds loan is 105%, unless the first mortgage has a lower cap. More than one Community Seconds lien is allowed up to that cap.

On a one-unit principal residence, Fannie Mae does not require a minimum from your own funds when a Community Seconds loan is in the deal. On a two- to four-unit principal residence above 80% loan-to-value, combined loan-to-value, or home equity combined loan-to-value, you must contribute at least 5% from your own funds before the second loan covers the rest.

How is a seller credit different?

A seller credit comes from someone selling you the house. Agency assistance comes from a program. Fannie Mae treats them differently.

Selling Guide B3-4.1-02 says interested-party contributions may cover buyer costs such as closing costs and prepaid items, inside set caps. Fannie Mae does not permit those contributions to make the down payment, meet reserves, or meet the minimum borrower contribution. Interested parties include the seller, the builder, and the real estate agent. An undisclosed second held by the seller makes the mortgage ineligible for sale to Fannie Mae.

A seller can often help with closing costs, inside the cap for your loan-to-value ratio. The down payment has to come from you, a gift that meets the gift rules, a grant, or an eligible subordinate loan.

How do you find your state program?

HUD's loans page says state and local governments offer programs that can help with the down payment. HUD's state information page lists every state and territory so you can open local contacts.

The National Council of State Housing Agencies publishes a directory called Find a State Housing Finance Agency. NCSHA says it does not administer housing programs or assistance. Each state created its own agency. You select the state, then contact that agency. The directory includes the Alabama Housing Finance Authority, the California Housing Finance Agency, the Texas Department of Housing and Community Affairs, and the Wisconsin Housing and Economic Development Authority, among the others. Use the directory, then the agency's own site, for what is open now.

Ask for five items in writing. Ask for the income limit for your county and household size. Ask whether the help is a grant, a forgivable second, or a deferred second. Ask when repayment is triggered, including a sale, a refinance, or a move. Ask whether homebuyer education is required. Ask which first-mortgage products the funds can sit behind.

HUD's loans page also says you can contact a HUD-approved housing counselor, or call (800) 569-4287. The counselor does not issue the assistance check. The agency or a participating lender does.

The first-time homebuyer guide covers the rest of the purchase once you know which assistance you are using. Cash you still bring to closing is the number to test.

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Pair the assistance terms with the first-time homebuyer guide. Then check the cash you still bring in how much down payment you really need and how 3% down loans work.

The first mortgage term still sets the monthly payment. See 15-Year vs 30-Year Mortgage: How to Weigh the Tradeoffs.

This article is educational and is not a loan offer or financial advice.

Sources

Frequently asked questions

Is down payment assistance free money?

A grant is help you do not repay if you qualified. A second loan is deferred or forgiven only while you follow the occupancy and resale rules. Fannie Mae lists both forgiveness over time and deferral until sale or payoff as acceptable Community Seconds structures. The note states which one you have.

Can assistance sit behind a 3% down conventional loan?

It can when the provider and the first-mortgage investor both allow it. Fannie Mae says HomeReady can go as low as 3% down, and Community Seconds can be used with standard products and with HomeReady. On a one-unit principal residence, that second-loan structure does not require a minimum from your own funds. The assistance program can still require some of your cash, a class, or a price cap.

Do seller concessions count as down payment assistance?

No. Fannie Mae does not allow interested-party contributions to cover the down payment. A seller credit can pay closing costs inside the loan-to-value cap. The down payment has to come from your funds, an acceptable gift, a grant, or an eligible second loan.

Will a deferred second raise my debt-to-income ratio?

Under Fannie Mae's Community Seconds rule, a payment deferred for five years or more does not have to be included. A payment that starts sooner must be included at the amount due after the deferral. Another investor can set a tighter test.

Where do I look up my state's housing finance agency?

Use NCSHA's directory and contact the agency for that state. NCSHA does not run the programs. HUD's state pages are the other official door, and HUD's loans page points buyers who need down payment help to state and local programs.