I'm hoping this helps if down payment assistance sounds too confusing.

I'll go over the structure, typical restrictions, pros and cons, and at the end I'll drop a link to a reddit post I did a while back that outlines a lot of the local down payment assistance programs in all 50 states

Structure

Down payment assistance doesn't get rid of your down payment.

You'll have a first mortgage, which is the purchase price minus the down payment.

Then you'll have assistance of some kind that covers the down payment.

It might be a second mortgage, or it could be a grant, which doesn't need repayment.

Grant

This one is simple. If you qualify for a grant, it means you don't have to repay it.

Loan

Down payment assistance might come in the form of a loan.

For many, it's difficult to have the discipline to put money aside for savings. But if it's forced, like loan payments or rent, people have an easier time making it work

There are 3 types of loans here:

1. Repayable with interest
2. a silent second
3. forgivable

Repayable with interest

This one is straight forward.

They offer you a loan to cover your down payment. They charge you interest, they charge you a monthly payment, and it might be on a 10-30 year repayment plan.

Programs like this tend to have the fewest restrictions

Silent Second

A silent second is a little more unique.

They give you the money as a loan. But they don't charge you interest. They don't charge you monthly payments.

It sits there, only needing to be repaid once you sell the home, refinance, or move out.

If we were to compare this to cancer, a silent second is benign.

I like the idea of a silent second because it doesn't charge interest.

Your money today will likely be more valuable than your money in the future (inflation) so if you would've spent the money anyway, you might as well put that money in something earning interest in the meantime.

Forgivable

A forgivable loan is the best kind of loan.

It usually has restrictions.

The biggest restriction is time.

If you maintain the home as your primary residence for 3-10 years (depending on the program) the city/county/state will forgive the entire amount that the loaned you.

So if you move out before the time restriction is met, then the loan will likely turn into a "silent second" that becomes due immediately.

If you sell then home before the time restriction, you'll need to pay it off with the proceeds.

If you refinance before the time restriction, it's possible that they'll require full repayment (check with them on 're-subordination upon refinance')

But if you have long-term plans for the house, this is almost as good as a grant.

Income limits

There are other common restrictions, like annual income.

You can't make too much money.

Each program has its limits.

A common one is 80% AMI

If you make more than 80% AMI, then it might disqualify you.

Here's a link to the AMI Lookup tool from Fannie Mae

If you have kids, those income limits may be adjusted up higher depending on the program.

Primary residence

These programs are intended for primary residence purchases. They don't want to fund some investor's portfolio.

National programs

Aside from the local programs, nationwide lenders have their own programs, with their own income restrictions.

Apart from programs like the Chenoa fund, these nationwide programs are commonly repayable with interest and a 10 year repayment term.

Pros and Cons

The pros to getting down payment assistance are obvious: less upfront money + homeownership

I'll list some of the downsides to utilizing down payment assistance:

• Time - down payment assistance programs can need extra time to process. It's likely run by a small local team, and your application will sit in line for days. You won't be able to close on your home lightning quick
• Repayable loans charge higher interest
• You will start out owing more than the home is worth (underwater/upside down)
• You can't shop interest rates/closing costs as easily (you're dependent on one program, so you can't really compare it to other programs)
• You're stuck with only approved lenders. (If you loved your first loan officer, you might not be able to keep him if you want a specific program
• Your realtor might be clueless (this hurts you because the realtor could set unrealistic contract deadlines, and if you fail to meet your contract deadlines, you could lose the house and your earnest money deposit)

Local down payment assistance guide

A while back I wrote a full guide to all 50 states and the local programs on a reddit post.

At the time, all of the links worked, but the city/county/state could have moved things around since I last posted it.

Here it is, and I hope it helps you find the best-fit program.