For many hopeful homebuyers, it’s not affording a monthly mortgage that’s the problem: It’s saving up for the hefty down payment and closing costs that a home purchase often comes with.

On your typical conventional loan, the minimum down payment is 3% — or $12,342 on a median-priced home (according to Federal Reserve data). When you throw in closing costs, which can amount to as much as 5% of your loan amount, even the most qualified of borrowers could end up owing $20,000 or more right off the bat.

Fortunately, VA loans remove this hurdle. As long as you have enough loan entitlement, VA borrowers don’t have to cough up a down payment when buying a house.

But if you want to offer some sort of down payment anyway — perhaps to lower your monthly payment or establish more equity — there are lots of programs that can help. Here’s what you need to know about down payment assistance programs (DPAs), and how you can use one alongside your VA loan.

VA Homebuying: Your 5 Steps to Success

What Are Down Payment Assistance Programs?

Down Payment Assistance programs are designed to help homebuyers reduce or even cover their down payment entirely. They come in many forms, including grants (which don’t need to be repaid), low-interest loans, or loans that offer deferred payments or even eventual forgiveness.

DPAs can be local, regional, or national, and you’ll find them through a variety of sources — including state housing agencies and nonprofit organizations.

The Missouri Housing Development Commission, for example, has a “First Place” program, which offers qualifying buyers and Veterans up to 4% of the loan amount in down payment and closing costs. The loan is forgivable if you stay in the home for at least 10 years. Nonprofit organization Beyond Housing is another option for Missouri homebuyers, offering up to $10,000 in down payment and closing cost assistance. These are 0%-interest loans that are forgivable after five years.

DPA programs and availability vary by locale, so it’s important to search for ones specific to your area if you’re interested in getting assistance.

The Benefits of a Down Payment on a VA Loan

A down payment isn’t required for most VA borrowers, but there’s still a benefit to offering one if you have the capability.

A down payment — even a small one — can:

  • Reduce your monthly payment
  • Reduce the amount of your upfront VA funding fee
  • Give you instant equity in your house
  • Qualify you for a better interest rate

That last part is probably the most impactful. Because a down payment lowers your loan-to-value ratio, it makes you less risky to lenders. Lenders reward this with lower interest rates, which means you pay less both monthly and over the long haul.

To be clear, if you have full VA loan entitlement, you do not need to make a down payment. It is entirely optional and one of the biggest benefits that come with the VA loan program. However, if you can make a down payment — especially utilizing a DPA grant or no-interest, forgivable loan — there are many advantages to doing so.

Note: If you don’t have full entitlement — meaning you’ve used your VA loan benefit before and still have a balance on that loan — then you may need to make a down payment. Your Certificate of Eligibility will tell you where your entitlement currently stands.

How the Programs Work — Key Mechanics

Eligibility Criteria

The exact eligibility criteria depends on the DPA you’re using, but typically, you will need to fall under certain income limits for your area and household size, as most programs are reserved for low- and moderate-income earners.

You often will need to be a first-time homebuyer, too — or at least not have owned a home within the last three years. In many cases, you will need to take a homeownership education course and purchase a property that meets certain requirements (it might need to be in a certain county, fall under a specific price point, or have restrictions regarding flood zones, for instance.)

Structure of Assistance

DPAs come in several structures. The best type is a grant, which is essentially free money. It is not a loan, there is no interest rate, and you do not have to repay the funds at any point.

Most DPAs are loans. Some of these come with low interest rates, while others are deferred-payment loans, meaning you don’t repay them until you sell the house or move away. Others may be forgivable loans, but only if you stay in the home a certain period of time (usually between three and 10 years, depending on the program).

How to Combine with a Mortgage

Combining a DPA with a mortgage is all about choosing the right loan program and lender. Some DPAs only work with certain loan programs, so you’ll need to make sure you choose a lender that offers and is well-versed in those loans (for example, VA or FHA loans).

From there, you’ll need to apply for the DPA, and the lender will work with the program to receive your assistance funds and put those toward your home purchase. They will then structure your main mortgage (minus the down payment) accordingly.

Steps to Apply for Down Payment Assistance

Down payment assistance can be a game-changer, no matter what type of loan program you use.

To apply for a DPA for your home purchase, you’ll need to

  1. Do your research. Look for local, regional, and national DPA programs you might qualify for, and check their eligibility requirements. Start with your city, county, and state housing department websites, and look to external sources, like DownPaymentResource.com, for more general options. Your local VA office or base housing office may be able to help, too.
  2. Get pre-approved for your mortgage. Apply for the mortgage program required by your DPA, and receive your pre-approval letter. This should tell you how much you qualify for and at what interest rate.
  3. Submit your DPA application. Work with your lender and apply for your DPA program. You’ll usually need documents like tax returns, pay stubs, and other financial paperwork, and your property will need to be inspected. You may also need to take a homeownership education course.
  4. Close on your loan. You’ll start making payments to your lender at this point. Depending on what type of DPA you choose, you may need to stay in the home a certain number of years in order to have your assistance loan forgiven.

Tip: Always work with a lender that’s familiar with DPA programs. This will make not only the application process easier, but it can also expose you to additional assistance you could be eligible for, too.

Tips for Choosing the Right Assistance Program

When comparing DPAs, look at compatibility with other incentives, as some programs can be combined with other assistance options, like mortgage credit certificates, tax credits, and state and local grants. This allows you to maximize your assistance and reduce how much you need to borrow from your lender.

Beyond this, look at how much assistance each DPA offers, as well as their forgiveness terms and their eligibility criteria. You should also consider how long you plan to live in the home, particularly if the programs you’re looking at require a residency period for forgiveness.

Finally, make sure to check the funding source for any DPA you consider, too. Some programs operate on limited funding, so the program could pause when funds run out. If a program you’re considering has limited funding, you may want to have backup options in place just in case.

Common Mistakes to Avoid

Down Payment Assistance programs can be hugely helpful for homebuyers. But mistakes can cost you if you’re not careful.

If you want to use a DPA successfully, make sure to avoid these common slip-ups:

  • Waiting years to save “20% down.” DPAs have specific application windows, and funding can sometimes be limited to only certain years or time periods. If you wait too long, certain programs may no longer be available.
  • Not knowing the repayment terms of the DPA program. All DPAs are different, so it’s important to understand what payments you might be on the hook for — and when they’re due. And if your DPA offers forgiveness, be prepared to put in the homeownership tenure to qualify for it (or know the repercussions you’ll face if you don’t.)
  • Not checking if the home qualifies. With many DPAs, the home you’re buying will need to meet certain requirements as to location, condition, value, and more. Be sure to read the fine print and adjust your home search accordingly.
  • Choosing an unapproved lender or loan program. You’ll usually need to use an approved loan program and lender to qualify for a DPA, so pick carefully. Ask a mortgage broker or housing counselor if you need help finding the right option for your DPA.

Final Thoughts – Making Homeownership a Reality

While down payments aren’t usually required for VA borrowers, they can still be beneficial, opening the door to lower monthly payments, better interest rates, and more equity right off the bat. And if you can’t come up with cash on your own, down payment assistance programs are a great way to produce a down payment for those who qualify. Just make sure you work with an experienced lender, and do your research to find the right program for your needs. An affordable home is just within reach.