Down Payment Programs and Closing Cost Credits

The Biggest Myth in Home Buying

The single most common reason first-time buyers don't buy is a belief that they need 20% down. Let me be blunt: you don't. You almost certainly never did. And the programs available in 2026 make homeownership accessible to buyers with as little as 3% down — and sometimes zero.

This chapter covers every major category of down payment assistance and closing cost help available to you. I'll tell you how they work, who qualifies, and where to apply.

Why the 20% Myth Persists

The 20% number exists because it's the threshold at which you avoid PMI on a conventional loan. That's a real benefit — PMI costs money. But the math often doesn't work the way people assume.

Consider this scenario: You have $20,000 saved. Should you wait until you have $80,000 (20% of a $400,000 home) before buying?

While you're saving, the home's price may increase. You're paying rent that builds zero equity. And the opportunity cost of being on the sidelines for years accumulates. Often, buying now with 5% down and paying PMI for 7–10 years is a better financial outcome than waiting years to reach 20%.

The 20% goal is a fine aspiration. But it should never be a mandatory prerequisite.

Agency Low Down Payment Programs

FNMA HomeReady

• Down payment: 3% minimum
• Credit score: 620 minimum
• Income limits: 80% of Area Median Income (AMI) — income limit maps are available at fanniemae.com
• Property type: 1–4 unit primary residence; 1-unit investment property (with 15% down)
• Mortgage insurance: Reduced rate vs. standard PMI; cancels automatically at 78% LTV
• Key feature: Counts income from non-borrower household members (e.g., a parent living in the home) toward qualification. Allows rental income from accessory dwelling unit (ADU)
• Education requirement: Framework homebuyer education course required for at least one borrower
• Where to apply: Any Fannie Mae-approved lender

HomeReady is designed for low-to-moderate income buyers, first-generation buyers, and buyers in underserved communities. If you're within the income limits, this is often the best conventional product available.

Freddie Mac Home Possible

• Down payment: 3% minimum
• Credit score: 620 minimum
• Income limits: 80% of AMI
• Property type: 1–4 unit primary residence
• Mortgage insurance: Reduced rate; cancels at 20% equity
• Key feature: Similar to HomeReady but run through Freddie Mac's LPA system
• Education requirement: CreditSmart homebuyer education for first-time buyers
• Where to apply: Any Freddie Mac-approved lender

HomeReady and Home Possible are similar products from competing agencies. Your lender will tell you which one your file fits better. In many cases, they'll run your file through both DU and LPA to see which returns the better result.

FHA Loans — Flexible but Read the Fine Print

Down payment: 3.5% with 580+ credit score; 10% with 500–579 credit score

FHA gift funds: 100% of the down payment can be a gift from a family member, employer, or nonprofit — one of the most flexible gift policies in the industry.

Loan limits: Vary by county. Check https://entp.hud.gov/idapp/html/hicostlook.cfm for your specific county's limit.

MIP reminder: FHA loans originated after June 2013 with less than 10% down carry mortgage insurance for the life of the loan. Loans with 10% or more down carry MIP for 11 years. This is a significant lifetime cost — factor it into your comparison.

VA Loans — The Best Deal in the Business

If you served, this section is for you. Please read it.

• Down payment: Zero. None.
• Mortgage insurance: None. VA loans have a funding fee instead, which ranges from 1.25%–3.3% depending on service history, down payment, and whether it's first or subsequent use. Veterans receiving disability compensation may be exempt.
• Interest rate: Typically competitive with or better than conventional
• Loan limit: No formal limit (lenders may set their own policies for loans above conforming limits without a down payment)
• Credit: No official VA minimum; lenders typically require 620+

My message to veterans: In my thirty-plus years in this business, I have never seen a scenario where a VA-eligible buyer benefited from choosing a different loan type over a VA loan. The savings in mortgage insurance alone are substantial. If you are eligible and you're not using a VA loan, please ask your lender to explain exactly why — and if the answer doesn't make sense, get a second opinion.

USDA Rural Development Loans

• Down payment: Zero
• Credit score: Typically 640+
• Income limits: Typically 115% of AMI
• Property eligibility: Must be in an eligible rural area — check eligibility.sc.egov.usda.gov
• Mortgage insurance: Annual guarantee fee of 0.35% (much lower than FHA MIP)

"Rural" is more inclusive than the name implies. Many communities on the outskirts of metropolitan areas qualify. If you're willing to live outside dense urban areas, USDA is an excellent zero-down option with lower ongoing mortgage insurance costs than FHA.

State and Local Down Payment Assistance Programs

This is where the real money is hiding — and where most buyers don't look.

Every state has at least one housing finance agency (HFA) that offers down payment assistance programs. Many counties and municipalities have their own programs on top of state programs. These programs typically offer:

Deferred payment second mortgages: You borrow a second loan for the down payment. No payments on the second loan until you sell or refinance (at which point it's paid back from your proceeds). Zero-interest or very low interest.

Forgivable loans: A second mortgage that is forgiven after a specified period (typically 5–10 years) if you remain in the home. Essentially a grant if you stay put.

Grants: Outright gifts that don't need to be repaid. Less common but they exist — particularly for buyers below certain income thresholds.

Matching savings programs: Some programs match your savings dollar-for-dollar up to a cap.

Examples of state programs:

These programs change regularly — income limits adjust, funding runs out and gets replenished, new programs launch. Don't rely on a list in a book; use DownPaymentResource.com for the current, searchable database.

Employer-Assisted Housing (EAH)

Many large employers offer homeownership assistance to their employees — either as a direct benefit or through partnerships with housing nonprofits. Examples include:

• Hospital systems (major hospital employers often have EAH programs for nurses, technicians, and administrative staff)
• Universities (faculty and staff housing assistance)
• Government and municipal employers
• Large corporations in high-cost markets

If you work for a large employer, ask HR whether any homebuyer assistance programs are available. You might be surprised.

Seller Concessions — Closing Cost Help

You don't always have to go to a special program to get closing cost help. In the right market conditions, you can ask the seller to pay some or all of your closing costs as part of the purchase negotiation.

How seller concessions work: The seller agrees to credit you a specified dollar amount at closing, which is applied to your closing costs. This reduces the cash you need to bring to close. In effect, you pay a slightly higher purchase price, but you finance the closing costs rather than paying them out of pocket.

When to ask: In a buyer's market or when a home has been sitting, sellers are more likely to agree to concessions. In a competitive multiple-offer situation, asking for concessions can cost you the deal. Read the market.

Lender Credits

You can also negotiate lender credits — the lender pays some or all of your closing costs in exchange for a slightly higher interest rate. This is different from paying points (which is paying upfront to get a lower rate). Lender credits are essentially the opposite: you accept a higher rate in exchange for closing cost help.

When this makes sense: If you're cash-constrained and expect to refinance within a few years (when rates potentially drop), accepting a slightly higher rate now in exchange for lower closing costs is reasonable. If you're going to hold the loan for 20+ years, you're better off paying the costs upfront.

Bringing It Together — A Real Down Payment Strategy

Here's how a typical first-time buyer in 2026 might stack these programs:

Example: $400,000 home, 3% down required ($12,000)

• Buyer saves $8,000 over 18 months
• CalHFA MyHome Assistance provides a deferred second loan for $4,000
• Seller concession of $6,000 covers most closing costs
• Buyer brings approximately $8,000 to close on a $400,000 home

This is real. This is happening in transactions every day. The programs exist. The key is knowing where to look and how to stack them.

To find every program available for your situation:

1. Go to DownPaymentResource.com
2. Enter your location, income, and purchase price
3. Review all qualifying programs
4. Discuss with your lender and/or HUD-approved counselor

The money is there. Go get it.