Few people know about down payment assistance programs. When talking to potential homebuyers, one issue that is consistently brought up is lack of savings to pay for down payment.

First, there is the misconception out there that you need 20% down payment to purchase a home. Is it great to have 20% and avoid paying private mortgage insurance (PMI)? Yes, of course. Is it necessary? Definitely not. You can have as little as 5% down payment on conventional loans and 3.5% on FHA loans.

The second misconception, and the one I want to focus on today, is that if you don’t have enough money saved up to even pay the 5% down payment, then you can’t purchase the home. There are many down payment assistance grants, interest-free second mortgages, and other mortgage programs out there to help potential home buyers with the issue of lack of down payment.

These down payment assistance programs are plentiful and cover the gamut of home buyers, and you don’t have to be a low-income household to qualify for many of these programs. In fact, in some areas of the country you can earn considerably more than your area’s median income and still be eligible for down payment assistance. Sometimes high-income earners can qualify for a grant of up to 5% of the purchase price of the home!

So how much can you expect to get in assistance? The average assistance can go anywhere from $5,000 to $20,000, depending on the city, county, or state that you live in. In some high-cost areas, the down payment assistance can be as much as $100,000. A lot of these down payment programs are setup as a silent, interest-free, second mortgage that only needs to be repaid when the home is sold or paid-off.

I want to make the caveat that just because you can access down payment assistance programs, it does not mean that you should be purchasing a home that’s pricier than you can afford.

First you should always determine how much home you can afford (monthly mortgage payment plus other costs). If you don’t have the 5% down payment for that home price saved up, or you simply don’t want to use all of your savings on a down payment, start looking at down payments assistance programs to cover the remaining down payment amount.

The important thing for lenders is that you have decent credit and can document your income thoroughly: they want to make sure that you have the ability to repay the loan. If the home you’re purchasing qualifies for a down payment assistance program and your lender is signed up to participate in that particular program that you’re interested in, they will handle the paperwork to help you get the assistance.

In addition to offering the most thorough mortgage calculator, MortgageHippo also helps first-time home buyers find down payment assistance programs to help them out. Feel free to ask any questions about down payment assistance in the comments box below and we’ll gladly help!