Down payment assistance (DPA) is help with the down payment that comes from a government agency, a housing finance agency or another approved program instead of from your savings. In Florida it usually arrives as a second mortgage recorded behind your main loan, and it's the piece that makes FHA 100% financing possible.
The three ways the second gets paid back
| Type | Monthly payment | What happens to it |
|---|---|---|
| Deferred | None | Paid off when you sell, refinance or pay off the first mortgage |
| Forgivable | None | Reduces over a set number of years in the home, then goes away |
| Repayable | Yes, usually small | Paid down monthly over its own term |
A deferred or forgivable second doesn't add anything to your monthly payment, which helps your debt-to-income ratio. A repayable second adds a payment that the lender counts as part of your housing cost.
How DPA works on each loan type
FHA. HUD lets a governmental entity provide the buyer's 3.5% minimum required investment. Put that second behind a 96.5% FHA first and the buyer brings $0 for the down payment. FHA prices its mortgage insurance on the first alone, so the assistance doesn't raise it.
Conventional. Fannie Mae's Community Seconds lets an eligible agency, nonprofit or employer place a second behind a Conventional first, with the combined loan-to-value allowed up to 105%.
VA and USDA. Both already allow $0 down for eligible buyers, so assistance on these loans, when it's used, goes toward closing costs.
Florida programs. Florida Housing Finance Corporation runs the statewide programs, including Florida Hometown Heroes. Counties and cities run their own programs too, many funded through the State Housing Initiatives Partnership (SHIP). Programs set their own rules, which can include household income limits, a purchase price cap, first-time buyer status, a homebuyer education class and a minimum credit score.
A $310,000 FHA purchase with DPA
A buyer earning $6,000 a month buys a $310,000 single-family home at a 5.75% rate on a 30-year fixed. Taxes run 0.95% of the price and insurance is $260 a month.
- FHA first, 96.5% of $310,000: $299,150, plus 1.75% upfront mortgage insurance of $5,235.13, for a total of $304,385.13
- Assistance second, 3.5%: $10,850
- Principal and interest on the first: $1,776.31
- Annual mortgage insurance (0.55%): $137.11 a month
- Taxes: $245.42 a month
- Insurance: $260.00 a month
With a deferred second, the housing payment is $2,418.84, which is 40.3% of $6,000 in income. If the program instead requires the $10,850 to be repaid at 0% over 10 years, that's $10,850 divided by 120 months, or $90.42 a month. The housing payment becomes $2,509.26, or 41.8% of income. Both sit well under FHA's 46.9% housing limit with an automated approval.
Getting DPA on your purchase
Ask for assistance before you write the offer, because some programs need approval or a class finished before closing. A seller credit can cover the closing costs the assistance doesn't, up to 6% of the price on FHA. The question page does down payment assistance have to be paid back covers repayment in more detail.
The price check tool shows the income a payment like this one needs. When you're ready to match a program to your county, income and price, call AAA Capital Funding at 888-601-8344.