The Truth About Down Payment Assistance Programs

08-23-2020 Home  »  Money  »  The Truth About Down Payment Assistance Programs

Hello everyone and welcome back to a new blog post! Shawn’s the name and mortgages are the game today!




It honestly hurts my heart with how many people have no idea what’s going on when it comes to a down payment assistance program. So today I want to FULLY break them down so you can make the right decision on whether to use a down payment assistance program or not when buying your first home.

Are they a great option for first time homebuyers? NO. …but also YES?

Here we go!

For those of you who don’t know I’m a licensed Mortgage Broker in Arizona and Texas and have colleagues licensed in all 50 states. Because of that, I get at least 2-3 first time homebuyers asking me every week, “Hey Shawn I want that first time home buyer incentive where I don’t have to put any money down to get into a home”.

I wish that was the case but nothing in this world is free.

When a bank or lender says they’ll cover the down payment for you, they’ve got to be making their money back somewhere because banks and lenders are in the business designed to make money, not to give money away.

That is why today, I want to break down what the typical down payment assistance program consists of, so you can make the educated decision if it’s worth it for you or not.

To start off! When you get a mortgage, the big loan (aka the mortgage) that you get is your first mortgage. It takes priority. Basically means you pay that sucker first. So when you don’t have the funds for the down payment, you may get a down payment assistance in the form of a second mortgage. So if you buy a $300,000 home, your first mortgage might be $291,000 and if you get a down payment assistance program, you may have a second mortgage for the other $9,000. This can come in all sorts of different shapes and sizes.

There are probably 10-30 different types of down payment assistance programs that all come with their own perks and guidelines. I’m not going to be talking about a specific program today. Instead I’m going to be talking about features most down payment assistance programs will probably have.

In fact there are 3 things you’ll want to fully understand before you dive head first into a down payment assistance loan.

First and foremost almost ALL down payment assistance programs will come with a much higher interest rate. We’re talking anywhere from 1.5%-3.5% higher than what you’d normally be at with a normal loan. To put things into perspective, on a $250,000 loan, that’s an additional $448 a month in monthly payment! That’s insane considering after 1 year, you would have spent an additional $5,376 in interest alone.

So you really need to think about that when considering using a down payment assistance program. But not only that, you also need to consider number 2.

What type of down payment assistance is it? Is it a soft second, silent second, actual second mortgage, or best case scenario a grant?

Let me break each of these down real quick. 

A soft second: is a second mortgage that you don’t pay on at all as the payments are deferred for a certain time period. The only time you would have to pay it is if you refinance or sell your home before the certain time period is up. This is the most popular form of a down payment assistance and they come with 3-5 year time periods on the seconds.

Basically it makes it so you can’t refinance or sell your home until 3-5 years is up or else the down payment assistance was a waste since you’ll have to pay it all back. This combined with the high interest rate is where most banks make their money.

A silent second: is very rare. It’s basically an illegal method of hiding the source of funds of your down payment from the lender who is lending the primary mortgage. That’s why it’s silent. It’s hidden and puts you at a potential risk of mortgage fraud.

Actual second mortagage: is what it sounds like. You’re paying your first mortgage every month in addition to your second mortgage. So it’s technically a down payment assistance program that just allows you to borrower up to 100% of the property’s value, since you’re paying 100% of it back.

A grant: the BEST type of down payment assistance programs.  This means you never have to pay money back or have to worry about having a second mortgage on the home, etc. etc. These are the safest forms of down payment assistance programs but usually come with higher interest rates to offset the difference in money that the bank will make.

Knowing the specifics of what type of down payment assistance program is key!

But the last thing you’ll want to fully understand is fees.

Most down payment assistance programs might not have that high of rates or might not be too tough on the soft second but it might come with a ton of upfront fees. Lots of these programs are very risky to banks and lenders which means if they are going to hold the liability of your loan, they’ll want to be compensated appropriately.

So before you get your mind set on a down payment assistance program, you need to understand the specific program’s interest rate, type of down payment assistance, and fees. Very important.

Again nothing is free in life. It might look like you’re getting a free down payment, but the bank or lender is making that money back by other means. So after learning about all of that is a down payment assistance program worth it?

I tell all my clients that if you have the luxury of waiting 6-12 months to save hardcore for your own down payment, you’ll ending saving more money in the long run.

However, not everyone is able to do that. Some people have a lease that’s ending soon or has to relocate for a job or is just in a pinch. In those situations, down payment assistance is perfect and it’s a great option!

I have completed tons of down payment assistance programs and I prefer to do the grant programs if my clients qualify. Yes, your rate is going to be higher but after you make 6 payments, we can refinance you to a lower rate and you won’t have any penalties!

I’ve done this hundreds of times in the past and in my opinion, it’s the best way to do down payment assistance.

Bottom line though: I only recommend down payment assistance programs when buying your first home if you absolutely need it. If you have a bit of savings built up, then try and stay away. You only need 3 or 3.5% to put down on a home and the median home listing price in the United States is $266,000. That means you only need about $8,000 to put down on a home.

It's up to you! But that’s Down Payment Assistance Programs in a nutshell!

They seem like the greatest thing put on this earth since the invention of puppies, but after further investigation you find out that they can be real messy, I guess just like puppies.

Do your research and make sure you’re working with a loan officer that you can trust! If you want to learn more about me and the mortgage process or if you want to work with me then head over to

Otherwise, I'll see you in the next one!

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About Shawn Malkou

He is the shawn-of-all-trades. Starting his entrepreneurship journey at the age of 14 with a dream and a single YouTube channel, he’s then since broken into countless industries. As the founder of Dream2Succeed, co-founder of DishTheDeal, co-founder of DirectionDesk, and lover of all things media – Shawn prides himself in picking up a new skill quickly to then share with others.

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Ready for the
next level?

Hi, I'm Shawn Malkou. I'm determined to help you succeed. My question is, are you ready?

Let's Do It