Mortgage and down payment assistance
Federal funding for mortgage, down payment, and closing cost assistance
For many low- and moderate-income homebuyers, the main obstacle to becoming a homeowner isn’t the monthly mortgage payment but rather the significant upfront expenses of the down payment and closing costs.
Several federal resources, including the Community Development Block Grant (CDBG) Program and the HOME Investment Partnerships Program (HOME) can help offset these costs to make it easier for first-time buyers to enter the market. However, jurisdictions need sufficient capacity to monitor affordability restrictions and other program requirements. HOME and CDBG, as well as some COVID-19 relief programs, can directly assist homeowners struggling with their mortgage payments.
Form of assistance. Localities can structure homeownership assistance programs in various ways: grants, forgivable loans, low- or no-interest loans with monthly payments, or deferred-payment loans due upon home resale. In choosing how to design their programs, jurisdictions should consider their capacity to administer different types of assistance. Down payment assistance grants and forgivable loans are simpler to administer, but loans allow the initial investment to be recouped and reused to help additional homeowners in the future. In the case of subsidized mortgages, monthly loan payments can provide predictability for the homeowner and program administrator. Still, a deferred payment option is often more straightforward for localities to administer.
Monitoring affordability and sale restrictions. As with the development of units for homeownership, using federal funds for homeowner assistance often comes with affordability and resale requirements. For example, homeowners who receive down payment assistance through HOME must abide by resale restrictions for five to 15 years, depending on the level of assistance. During this period, the jurisdiction must either ensure that the property sells at an affordable rate to an income-eligible family or they must recapture the subsidy upon sale. An alternative is to forgive a portion of the assistance each year over the course of the compliance period. Localities should ensure that these requirements are being adhered to via monitoring. They can also work with an experienced partner such as a Housing Finance Agency or community development corporation.
Preserving long-term affordability. While it can be time-consuming to monitor long-term affordability restrictions, jurisdictions should consider lengthening the required affordability period beyond the minimum dictated by HOME when large amounts of assistance are involved, such as $20,000 or more. This will help maximize the investment benefits to the community, allowing one generation of homeowners after another to benefit from the same initial investment in affordability. Deed restrictions and community land trusts are two mechanisms for preserving long-term affordability.
Using the Homeowner Assistance Fund before it expires. The Homeowner Assistance Fund provides direct assistance to homeowners who have experienced financial hardship related to the COVID-19 pandemic and are at risk of mortgage delinquency, foreclosure, or utility shut-offs. All program funds must be expended by September 30, 2025. Jurisdictions should consider how to use funds before this deadline effectively. In addition to emergency assistance, jurisdictions can use funds to offer principal reductions, facilitate interest rate reductions, or support homeowner counseling services.
For more information on this topic, see this brief on Down Payment and Closing Cost Assistance.