Buying your first home is exciting, but coming up with a large upfront payment can be a major hurdle—especially if you can comfortably afford monthly mortgage payments but don’t have a lot of cash saved for a down payment or closing costs. There are down payment assistance programs designed specifically for buyers like you! These programs can help cover part or even all of your upfront costs, making homeownership more accessible than you might think.
Here's a quick guide that will explain what a down payment assistance program is, how it works, and what are the different options that exist to help you reach your goal of owning a home.
What Is Down Payment Assistance?
Down payment assistance (DPA) is any type of program designed to help home buyers afford a down payment. Some programs also help lower or cover your closing costs. There are thousands of DPA programs available across the country, and the majority of them are offered at state, county, and city levels, and even through some banks and lenders. Down payment assistance is typically geared toward first-time home buyers, but there can also be assistance available for repeat home buyers.
These programs typically have eligibility requirements and borrowers usually have to take out a mortgage with a participating lender to take advantage of their assistance program. The funds often come from the U.S. Department of Housing and Urban Development, or HUD, as well as employers, community organizations, and state and local governments.
Who Qualifies for Down Payment Assistance?
If you're a first-time homebuyer in Philadelphia, down payment assistance (DPA) programs can make homeownership more affordable. However, most programs have specific eligibility requirements. Here’s what you need to know:
Credit Score: Most programs require a minimum credit score of 620, though some offer flexibility for lower scores.
Income Limits: DPA programs are designed for low-to-moderate income buyers. In Philadelphia, eligibility is based on household size and income thresholds.
Debt-to-Income (DTI) Ratio: This measures your monthly debt payments against your income. Most programs set a limit of 40-45% DTI.
Primary Residence Requirement: The home must be your primary residence—investment or rental properties do not qualify.
Homebuyer Education: Many programs require you to complete a homebuyer education or financial literacy course from approved local organizations like the Philadelphia Housing Authority (PHA).
Eligible Property Types: Most programs cover single-family homes, condos, and townhouses.
Public Service Incentives: Philadelphia offers extra benefits for teachers, police officers, firefighters, and other public service workers.
Loan Type: Most programs require a 30-year, fixed-rate mortgage to ensure stable payments.
Types of Down Payment Assistance: Loans and Programs
Down payment assistance comes in three main types: loans, grants, and credits, each with its pros and cons. Here are some of the most common:
Grants
Home buyer grants are the most popular and most valuable form of down payment assistance. This is because it provides homeowners the money that they never have to repay since it's considered a gift. If you qualify, you can use the cash sum to cover all or part of the down payment or closing costs.
However, most grant programs are often more difficult to qualify for due to challenging requirements, such as that you need to live in the home as your primary residence for a certain number of years after your purchase. It’s also important to keep in mind that some programs labeled as grants by the organization providing the funding may create a second lien on your home. Just make sure that you know what you’re getting into and that your lender is aware of the grant.
Forgivable loans
A forgivable loan is technically a second mortgage large enough to cover the down payment, but it acts as a grant since you don’t have to repay the loan if you meet certain requirements. For example, a program might forgive the loan if you live in the home and pay the primary mortgage for a set amount of time, typically anywhere from three to 10 years. However, if you move, refinance your mortgage, or sell your home before the loan is forgiven, you’ll need to pay it back. Forgivable loans have an interest rate of 0%.
Deferred payment loans
A deferred payment loan most often takes the form of a no-interest second mortgage that typically covers the cost of the down payment. But unlike forgivable loans, you will have to pay back the loan at some point. This happens when you sell the home, refinance your mortgage, or pay off your first mortgage.
Low-interest loans
This type of down payment assistance also functions as a second mortgage but with a lower or more affordable interest rate than your first loan. Along with making monthly payments for your primary mortgage, you’ll likely need to repay this loan in installments, typically over a few years. This means you’ll be making two monthly mortgage payments.
Individual Development Accounts or matched savings programs
Also called a matched savings program, an Individual Development Account (IDA) is a unique type of down payment assistance. It’s a special savings account that home buyers deposit money into, which is matched by either a bank, government agency, or community organization. For example, if you put $5,000 into the account, the agency you’re working with would match that amount, making it $10,000. The total funds can then be used to help cover their down payment or other qualifying costs. These programs often have strict requirements to qualify, such as income restrictions, and employment requirements, and participants usually need to complete financial literacy training.
How to Find Down Payment Assistance Programs in Philadelphia
There are many ways to find down payment assistance (DPA). Here’s where to start:
HUD Website: Start by checking the HUD website for home-buying programs at the federal and state levels. For more localized help, you can also search for HUD-approved housing counselors in your area. In Philadelphia, these counselors can provide valuable, free advice on navigating the home-buying process and finding the right DPA program for you.
State Housing Finance Agencies (HFAs): Every state runs an HFA, and Pennsylvania is no exception. You can visit the Pennsylvania Housing Finance Agency (PHFA) website to learn about the state-supported down payment assistance programs available. These programs often offer grants or low-interest loans to help with your down payment and closing costs.
City and County Resources: Many cities, including Philadelphia, offer local grants or loan programs. For example, the City of Philadelphia’s PHLY Home Program offers financial assistance to first-time homebuyers in the city. You can also check out the Philadelphia Housing Development Corporation (PHDC) for more resources specific to local down payment assistance.
Housing Support Programs in Municipalities: In addition to state and city programs, counties often have their own housing support programs. In Philadelphia County, programs like the First-time Homebuyer Program are designed to help buyers in the area. Be sure to explore options at the county level as well.
Nonprofit Organizations: Several local nonprofits, such as the Pennsylvania Association of Community Developers (PACD) and the Community Development Corporations (CDCs), focus on affordable housing and may provide grants, loans, or other forms of assistance to homebuyers in Philadelphia.
Programs for Specific Groups: Look for down payment assistance programs targeting specific professions or groups. For example, the Teacher Next Door program offers down payment assistance for teachers, and the Philadelphia Firefighters and Paramedics Down Payment Assistance Program supports first responders in purchasing homes. Similarly, there are programs for law enforcement, healthcare workers, and others in public service.
Your real estate agent and mortgage lender can be key partners in helping you find down payment assistance programs. Be sure to ask them about local programs that may apply to you. It’s also important to check if your lender participates in specific DPA programs, as not all lenders work with all assistance options.
Our Veture Philly team works with multiple mortgage lenders and highly recommends reaching out to:
Mike Tavani from Rate – Mike is well-versed in down payment assistance programs and can help guide you through the process. Contact Mike Tavani directly to learn more.
Paul Davis from Movement – Paul is another great resource for understanding and securing down payment assistance, especially for first-time homebuyers. Contact Paul Davis for personalized assistance and program details.
Down Payment Resource (DPR): A valuable tool for homebuyers in Philadelphia is the Down Payment Resource (DPR) tool, which offers a comprehensive search of available programs. It’s a great resource to check your eligibility and explore DPA options through a combination of government programs, private lenders, and nonprofit organizations.
How Long Does It Take to Get Down Payment Assistance
Down payment assistance programs vary by state and locality, so the time it takes to receive assistance largely depends on the specific program and type of help. While the timeline can differ, it’s important to know that it’s usually a lengthy process.
If you’re thinking about applying for down payment assistance in Philadelphia, it's a good idea to begin researching your options before you start searching for a home. This will give you enough time to complete all necessary steps, including any required classes. For example, the Philadelphia Housing Development Corporation (PHDC) offers a first-time homebuyer program that may require you to attend a homebuyer education class, which can take some time to schedule.
Starting early also ensures you’ll be able to meet all requirements and deadlines—whether it’s submitting documents, taking classes, or waiting for approval. Some programs, like the PA Housing Finance Agency (PHFA) assistance, have specific timelines that might require you to complete the process before closing on your home.
By planning ahead, you can make sure you're prepared and not rushed when it's time to finalize your home purchase. Ready to start your real estate journey and need a specific plan that fits your needs? Connect with your preferred agent today!
