What are down payment assistance loans and how do they work?

Down payment assistance (DPA) loans are second mortgages, usually from state or local housing agencies, that lend you the money for your down payment or closing costs on top of your main mortgage. They come in several forms. Deferred-payment loans require no monthly payments and are repaid only when you sell, refinance, or pay off the first mortgage. Forgivable loans are gradually canceled the longer you stay — often fully forgiven after 5 to 15 years of living in the home. Amortizing DPA loans carry a low interest rate and a monthly payment alongside your first mortgage. Each has trade-offs around repayment timing and whether selling early costs you. Eligibility typically depends on income limits, the home's price, and a homebuyer education course. Ask which DPA programs your lender is approved to offer, and read the repayment terms closely before signing.