Pairing down payment assistance with your first mortgage

Questions buyers ask about this

Can I use down payment assistance with an FHA loan?

Yes. FHA is the most common pairing, and assistance from a government entity or approved nonprofit can generally cover the minimum required investment. Assistance funded by the seller is not permitted, which is why legitimate programs run through housing agencies.

Does assistance work with a VA loan?

Sometimes. VA already allows no down payment, so assistance is applied to closing costs, prepaids and the funding fee. Not all agency programs approve a VA first mortgage, so check the program's approved first-mortgage list before planning on it.

Is an assisted loan more expensive than a standard loan?

It can be. Agency first mortgages and lender-funded grants are often priced above the open market. Compare the total five-year cost of the assisted loan against a standard loan with your own funds before choosing.

Does FHA allow down payment assistance from any source?

No. FHA permits assistance from government entities, instrumentalities of government and approved non-profits, but prohibits assistance funded by the seller or by a party with an interest in the sale. The source, not just the amount, has to be documented.

Can assistance cover both the down payment and closing costs?

Frequently yes, with the down payment funded first. What is left may usually go to allowable closing costs and prepaids, and some programs cap the closing-cost portion or prohibit cash back to the borrower entirely.

Why do VA and USDA buyers use assistance if they can put zero down?

Because closing costs, prepaid taxes and insurance still have to come from somewhere. On those loans assistance is generally applied to costs rather than to the down payment, which can be the difference between closing this month and saving for another year.

Does conventional financing limit the amount of assistance?

Conventional programs allow community seconds that meet the investor's requirements, and those requirements govern lien position, payment terms and maximum combined loan-to-value. A second that does not fit the investor's rules cannot be used, however generous it is.

Can I use two assistance programs at once?

Sometimes. Layering requires permission from both administrators and from the first mortgage investor, and combined loan-to-value limits still apply. Get all three confirmations before you rely on a layered structure.

Does using assistance mean I must take the agency's first mortgage?

Often, yes. Many housing finance agency seconds are only available with that agency's own first mortgage, priced by the agency. Compare the total cost of the agency first plus assistance against a standard first mortgage without it.

Does assistance change my mortgage insurance?

Not directly. Mortgage insurance is priced off the first mortgage's loan-to-value and your credit profile. Assistance can lower it indirectly by increasing your down payment and reducing that ratio.