Assistance For Low Or Moderate Income Family

Yes, almost every state has specific housing finance agencies that offer down payment assistance programs, often tailored to first-time homebuyers or low-to-moderate-income families. For example, California has the CalHFA My Home Assistance Program, Florida has the Home Sweet Home Hillsborough Program, and Texas has the “My First Texas Home” program. These programs often vary by county and may offer different types of aid, such as grants or low-interest second mortgages. Borrowers should research programs specific to their state or county to find local opportunities.

Yes, family members are permitted to provide secondary financing (a loan) to help with the down payment, but this comes with stricter rules than gift funds. If a family member lends the money, the Combined Loan-to-Value (CLTV) ratio of the first mortgage plus the second mortgage from the family member cannot exceed 100 percent of the adjusted value of the property. This means the total debt on the home cannot be more than the home is worth. Additionally, the periodic payments on this loan must be level and monthly, and there cannot be a prepayment penalty.

Families purchasing a HUD Real Estate Owned (REO) property—essentially a home foreclosed upon by the FHA—may qualify for the “100 Down” sales incentive. This program allows a borrower to purchase a HUD REO property with FHA-insured financing using a minimum down payment of just $100, rather than the standard 3.5 percent requirement. This incentive can be processed under standard FHA loan programs (Section 203(b)) or rehabilitation loans (Section 203(k)), making it a viable option for buyers looking to purchase fixer-uppers with minimal upfront cash.

No, the seller is strictly prohibited from contributing funds toward the borrower’s Minimum Required Investment (down payment). While sellers and other “Interested Parties” (such as real estate agents or builders) can contribute up to 6 percent of the sales price toward closing costs, prepaid items, and discount points, they cannot fund the down payment directly or indirectly. Any contribution that exceeds the actual closing costs or the 6 percent limit is considered an “Inducement to Purchase,” which results in a dollar-for-dollar reduction in the purchase price for loan calculations.

Yes, “Employer Assistance” is a recognized source of funds under FHA guidelines. Employers can provide benefits to assist with a borrower’s housing purchase, including covering closing costs, mortgage insurance premiums, or any portion of the Minimum Required Investment. This assistance is distinct from secondary financing; it refers to benefits provided by the employer, such as a guaranteed purchase plan for relocation or direct assistance plans. The lender must verify the receipt of the assistance and ensure that if the benefit is provided after settlement, the borrower has sufficient personal cash to close.

HUD-approved nonprofit organizations are permitted to provide secondary financing to assist borrowers. Like governmental entities, these nonprofits can provide a second mortgage to cover the down payment and closing costs. However, the nonprofit must appear on the HUD Nonprofit Roster unless they have a documented agreement with a government entity to assist in the operation of that entity’s housing program. These secondary loans must not result in cash back to the borrower (except for refunds of earnest money) and payments on the secondary loan must be included in the borrower’s total mortgage payment calculations.

Yes, certain grants are acceptable sources for the down payment, provided they come from eligible entities. For example, “Disaster Relief Grants” from governmental entities providing housing assistance to displaced individuals are permitted for the Minimum Required Investment. Additionally, the Federal Home Loan Bank (FHLB) offers a “Homeownership Set-Aside Grant Program” which is an acceptable source of down payment assistance. Mortgagees must verify the terms of use and receipt of the grant. Unlike loans, these grants do not require repayment and generally do not create a lien against the property.

The Good Neighbor Next Door (GNND) program is a special sales incentive designed to revitalize certain communities. It allows eligible law enforcement officers, teachers (pre-K through 12th grade), firefighters, and emergency medical technicians to purchase specific HUD Real Estate Owned (REO) properties at a 50 percent discount from the purchase price. Crucially for low-to-moderate income buyers, this program allows the borrower to purchase the home with a minimum down payment of only $100. The borrower may also finance customary and reasonable closing costs into the mortgage amount.

Yes, federal, state, and local government agencies may provide assistance in the form of “secondary financing.” This often takes the form of a second mortgage or lien against the property. Under FHA rules, secondary financing provided by governmental entities or “Instrumentalities of Government” can be used to meet the borrower’s Minimum Required Investment (MRI). Unlike other forms of secondary financing, loans from these government sources do not have a maximum Combined Loan-to-Value (CLTV) limit, meaning they can cover the entire down payment if the program allows. These funds must be disclosed at the time of application.

Yes, family members and close friends are permitted to assist with the down payment for an FHA loan. FHA guidelines categorize these contributions as “gift funds.” To be acceptable, the funds must be a genuine gift with no expectation of repayment. In addition to family members and close friends with a documented interest in the borrower, acceptable donors can include employers, labor unions, and charitable organizations. The borrower must provide a gift letter signed by the donor that specifies the dollar amount and explicitly states that no repayment is required. “Cash on hand” is not an acceptable source for these gifts.