Down Payment Assistance, explained from scratch.
If you're new to the homebuying process, this is the page to start on. We'll cover what DPA actually is, the three forms it takes, who qualifies, and the most important question — when it's worth using and when it isn't.
Quick definitions
- Down Payment: the portion of the purchase price you pay up front, not financed by the mortgage. Typically 3–5% on conventional, 3.5% on FHA.
- Closing Costs: fees paid at closing — title, appraisal, lender fees, recording, prepaid insurance and taxes. Typically 2–4% of the loan amount.
- Down Payment Assistance (DPA): a grant or second loan that covers some or all of the above, delivered through a state, city, county, or non-profit program.
- First Mortgage: the main loan you'll pay back monthly. With most DPA, this is FHA, VA, USDA, or conventional.
- Second Lien (or "Second Mortgage"): the loan structure DPA usually takes — sits behind the first mortgage in priority. Some are forgivable, some you pay monthly.
The three structures DPA takes
1. Forgivable second (the "soft second")
The assistance is recorded as a second loan against your home, but no payments are required. If you continue to live in the home as your primary residence for the forgiveness period — typically 3, 5, or 7 years — the loan is forgiven and you owe nothing.
- You pay back: nothing if you stay long enough.
- You pay back early if: you sell, refinance for cash-out, or stop using the home as your primary residence before the forgiveness period ends.
- Tradeoff: the first-mortgage rate is usually slightly higher than market — that's how the program funds the forgiven assistance.
2. Repayable second (amortized)
The assistance is a real second loan with a real monthly payment, typically a 10-year term at 1–2% above the first mortgage rate. You pay it down alongside the first mortgage.
- You pay back: the full amount over the term, with interest.
- Tradeoff: the first-mortgage rate stays closer to market because the program is being repaid. But you carry two payments and your DTI calculation includes both.
3. Deferred second (silent second / due on sale)
No monthly payments. The assistance sits as a silent second and is fully repaid only when you sell the home, refinance for cash-out, or stop using it as your primary residence.
- You pay back: the full assistance amount when one of the trigger events happens.
- Tradeoff: better cash flow than a repayable second; but you eventually owe the full balance, so it's not "free money" — it's a deferred liability.
Who qualifies for DPA?
Eligibility varies by program. The most common requirements:
- Credit score: typically 600–660 minimum depending on program and loan type.
- Owner-occupancy: almost universally required — DPA programs don't work for investment properties.
- First-time homebuyer status: required for some programs (Flagstaff CHAP, parts of Home Plus). Not required for many others.
- Income limits: required for most local programs; usually not required for national programs.
- Property location: AZ-specific programs require the home be in Arizona; some are county- or city-restricted.
- Property type: single-family, condo, townhome, manufactured home (sometimes); 1–2 unit (some programs); investor properties never.
- Homebuyer education course: almost universally required — usually 4–6 hours, often free, online.
Where the money actually comes from
Most DPA programs are operated by state housing finance agencies, county housing departments, city governments, or non-profit organizations. The funding model: the program purchases your first mortgage at a slightly above-market rate, and uses the spread to fund the down payment assistance grant.
This is the part most consumers don't understand at first: the assistance is not free money. It's funded by you paying a slightly higher rate on the first mortgage. That rate premium is real — usually 0.25%–0.75% above what you'd get on a conventional or FHA loan without DPA.
For someone who has very little saved, that premium is worth it because it gets you into a home years sooner. For someone with most of the down payment saved, the premium can cost more over time than the assistance is worth. That's the calculation we run in your consult.
Related guides
- Forgivable vs. Repayable DPA — which structure makes sense for your timeline.
- When NOT to use DPA — sometimes saving your own down payment is the better move.
- All AZ + national programs — the full menu we work with.
Ready for an honest answer?
Tell us your numbers and we'll model DPA vs. no-DPA side by side.