Down Payment Assistance — Forgivable or Repayable, by Program

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What Is Down Payment Assistance and How Does It Work?

Down payment assistance — commonly called DPA — is money provided to a home buyer to cover all or part of the required down payment and closing costs when purchasing a home. In most cases, down payment assistance comes in the form of a second mortgage or lien placed behind the primary FHA loan. Depending on the specific program, that second lien is either forgivable after you make a set number of on-time payments, or it becomes a fully repayable loan with its own monthly payment and interest rate.

The most common structure pairs a 3.5% or 5% FHA down payment assistance second lien with a 30-year fixed FHA first mortgage. The DPA funds cover the FHA minimum 3.5% down payment — and in some cases can extend to closing costs as well — so a qualified buyer does not need savings for the down payment itself. The U.S. Department of Housing and Urban Development maintains a directory of approved DPA programs and housing counseling agencies for buyers seeking additional resources.

Mortgage-World.com (NMLS #1630225) is licensed in NJ, CT and FL and places FHA DPA in all three states. If you want to know whether you qualify, a free mortgage review is the quickest way to find out. We will show you what the 3.5% and 5% programs would put toward your purchase before you commit to anything.

FHA DPA Programs at a Glance

FHA DPA Program Options: 3.5% vs 5% Compared

We place three FHA DPA programs. The 3.5% and 5% programs pair with a 30-year or 25-year fixed FHA first mortgage; the manufactured home program pairs with a 30-year fixed. All three can be used for down payment and closing costs.

Program Structure

How FHA DPA Second Liens Are Structured

When you use an FHA down payment assistance program, you are taking out two loans simultaneously. The first is a standard FHA mortgage at 96.5% LTV, covering the purchase price minus the required 3.5% minimum down payment. The second is the DPA lien, which provides exactly that 3.5% (or 5%, depending on the program) to cover the FHA down payment requirement. The combined loan-to-value — called the CLTV — reaches 100% on the 3.5% DPA program and up to 101.5% on the 5% DPA program, which can also absorb some of the closing costs.

On the 3.5% forgivable DPA option, no monthly payments are required on the second lien for its 360-month term, and the lien can be forgiven entirely at your request after 36 consecutive on-time payments on the first mortgage. That means after three years of on-time payments, the second lien disappears. On the repayable option, the DPA second lien carries an interest rate equal to the first mortgage note rate plus 2%, and it amortizes fully over 120 months (10 years). Whichever structure you choose, at least one borrower must complete counseling before closing with a HUD-approved nonprofit housing counseling agency.

A 2-1 temporary buydown is also available on the 3.5% FHA DPA program for 30-year and 25-year fixed first liens. The buydown must be seller or builder paid — the borrower cannot pay for it — and it must fall within the FHA 6% interested party contribution limit. The borrower always qualifies at the Note Rate, not the reduced buydown rate.

State-Offered Programs

What About State Housing Agency Programs?

Each of the three states we are licensed in also runs its own assistance through a state housing agency: the New Jersey Housing and Mortgage Finance Agency, Florida Housing Finance Corporation and the Connecticut Housing Finance Authority. Those are separate programs with their own eligibility rules, and they are not ones we offer. The FHA DPA on this page is the assistance we place, in all three states.