5 Types of Down Payment Assistance: Are Grants Really the Best Option?
If you’re exploring how to buy a home with little to no money down, you’ve probably heard of down payment assistance (DPA). But not all DPA is a true “grant.” In fact, most programs are structured as loans—some silent, some forgivable, and some with monthly payments.
Here’s a breakdown of the five most common DPA structures—and how to choose the one that’s best for your goals.
1. Down Payment Grants
Grants are the most sought-after type of DPA because you don’t have to repay the funds. However, they are also the rarest.
According to the Urban Institute, only 9.4% of DPA programs are true grants. Most are loans in some form. Grants typically come with strict eligibility requirements, such as:
Extremely low income thresholds
Purchase in designated neighborhoods
Use of a specific lender or loan product
Some grants are tied to higher interest rates and lender fees, effectively “charging” you more in the long term. Programs like Bank of America’s DPA grant or Texas TSAHC grants fall into this category.
✅ Pros: No repayment required
❌ Cons: Very limited availability; may come with higher rates or fees
2. Silent Second Mortgage (No Monthly Payment)
Often called a “silent second,” this type of DPA is a loan with no monthly payment. It sits behind your first mortgage and only becomes due when you:
Sell the home
Refinance the first mortgage
Move out of the property
This option doesn’t impact your debt-to-income ratio (DTI), making it ideal for borrowers close to qualification limits.
For example, if you’re using an FHA loan requiring 3.5% down, a silent second can cover that amount with no immediate repayment obligation.
✅ Pros: No monthly payment; doesn’t affect DTI
❌ Cons: Can limit future refinancing or early sale flexibility
3. Forgivable Loan
A forgivable loan is a hybrid between a grant and a loan. You’ll sign for a second mortgage, but the balance is forgiven over time, usually between three to 10 years, as long as you remain in the home and meet program terms.
You won’t make monthly payments, and interest is typically 0%. However, you’ll need to stay in the home for the required term—if you sell or refinance early, you may have to repay all or part of the loan.
Many state and local housing agencies offer forgivable loan options to encourage long-term homeownership and community stability.
✅ Pros: No repayment if you meet residency requirement
❌ Cons: Loan becomes repayable if you move or refinance too soon
4. DPA Loan With Monthly Payments
This is the most traditional loan structure: a second mortgage with monthly payments. It’s often issued by government agencies, nonprofits, or employer programs, and can be used to cover the down payment and even some closing costs.
Since you’ll have a second loan payment, it increases your DTI—so this option works best for buyers with sufficient income to absorb the extra cost.
Loans must come from an eligible source such as:
State or local housing agencies
Nonprofits
Employers
Recognized tribal organizations
Your lender may bundle this with your main loan, or you may need to apply separately.
✅ Pros: Fewer income restrictions; broader eligibility
❌ Cons: Adds to monthly expenses; can complicate mortgage approval
5. Lender-Funded Down Payment Assistance
Many lenders now offer in-house DPA programs nationwide. These often appear as grants or second loans, but the funding typically comes from built-in interest rate or fee increases—you’re essentially paying for the assistance over time.
This method is legal and approved by agencies like HUD, but it’s important to understand that the cost is indirectly passed on to you.
Depending on the structure, these programs may be non-repayable grants or silent second mortgages. Some include refinance restrictions, limiting your ability to lower your rate later.
✅ Pros: Widely available; few income or location limits
❌ Cons: Higher interest rates and fees; potential restrictions on refinancing
So—Are Grants the Best Option?
Grants sound like the best deal because they don’t require repayment. But once you consider higher interest rates, limited availability, and strict eligibility, it’s clear that other DPA types may offer more long-term savings and flexibility.
The best DPA for you depends on:
Your income
Where you want to buy
How long you plan to stay in the home
Your willingness to accept loan terms in exchange for upfront help
Final Thought: DPA Can Put You in a Home Sooner
Saving for a down payment can take years—but with the right DPA, you could own a home much sooner than you think. Every type of assistance has trade-offs, but the key is understanding your options and comparing them carefully.
Speak with a knowledgeable lender to explore what DPA programs are available in your area. You may be just one smart move away from unlocking the door to homeownership.
