How to Choose a Down Payment Assistance Program

Most homebuyers start their down payment assistance (DPA) search with one question: “how much money can I get?” when what they should also be considering is “what will this cost me or impact me over the years I own the home?“

Two programs can offer the same dollar amount and behave completely differently when you sell, refinance or simply watch rates drop. Here’s how I walk Washington homebuyers through the comparison.

Grant, forgivable loan or deferred loan?

“Down payment assistance” is a label that covers very different products. A true grant never has to be repaid. Most programs are actually second loans, and they fall into a few categories:

• Forgivable loans — the balance is forgiven if you meet conditions, usually staying in the home and keeping the first mortgage for a set number of years.
• Deferred‑payment loans — no monthly payment, but the balance (sometimes with interest) comes due when you sell, refinance or move out.
• Low‑interest second loans — repaid monthly alongside your first mortgage.

Which category you’re in matters less than the exact terms attached to it.

The six questions I ask about every down payment assistance program

1. Is it forgivable, and what are the conditions?

Forgivable sounds like free money, but the conditions are the whole story. Zillow Home Loans recently launched an FHA down payment assistance program in most states, including Washington. It provides up to 3.5% of the purchase price (or appraised value, if lower) as a second loan with no interest and no monthly payment. It’s forgiven after five years of on‑time payments on the first mortgage while you live in the home. If you sell, move out or refinance before that five‑year mark, the assistance must be repaid in full.

That can be a great fit if you plan to stay put. But if rates fall in year two or three, a refinance would mean paying back the full assistance amount to get the lower rate. Run that math before you choose it.

2. What happens when you sell or refinance?

Some programs, including the Washington State Housing Finance Commission (WSHFC) down payment assistance options, are structured as deferred second loans. Nothing is forgiven over time. The balance becomes due when you sell or refinance, whether that happens in year two or year twenty. That isn’t necessarily bad, since you aren’t penalized for timing and you don’t owe a monthly payment. It just means the assistance is a cost you’ll settle later, not a gift you earn by staying. 

3. Does it allow a refinance if rates improve?

This is where programs differ most, and where buyers get surprised. Some programs allow a refinance, but only if the assistance is paid off at closing. Others may allow the assistance loan to stay in place, which keeps your options open.

Here’s an example of why that matters. If you buy with an FHA loan and your DPA program allows it to remain in place, an FHA streamline refinance may let you lower your rate later without a new appraisal, so your home’s value and your loan‑to‑value ratio aren’t a factor. That can be a real advantage if rates drop. Streamline refinances have their own requirements, including a net tangible benefit and a seasoning period, and the assistance lender typically has to agree to stay in second position. 

4. Which first mortgage does it require?

Most down payment assistance is tied to a specific first mortgage, and the first mortgage brings its own underwriting rules. Some programs pair with conventional, FHA, VA or USDA loans. Others work with only one. Zillow’s new program, for example, is for FHA loans only, while WSHFC assistance must be paired with a WSHFC first mortgage, which can be used with several loan types. 

That choice affects more than eligibility:

• Credit and debt‑to‑income guidelines — each loan type has its own standards, and the program or lender may add stricter minimums on top.
• Mortgage insurance — FHA mortgage insurance and conventional private mortgage insurance work differently, and conventional PMI may be removable later. VA loans have no monthly mortgage insurance, and USDA has its own fee structure.
• Property and location rules — USDA, for example, has geographic and income limits, and each loan type has its own appraisal and property condition standards.
• Your refinance options later — an FHA streamline is available only if you have an FHA loan, so the first mortgage type shapes your exit strategy.

The best assistance program on paper may not be the one your first mortgage can actually use. Choosing the loan and the assistance together, not one after the other, is how you avoid a mismatch. 

5. How will your home value and loan amount affect your options later?

The assistance doesn’t exist in a vacuum. If your first mortgage plus the assistance loan is close to your home’s value and the market softens, you may have limited options to refinance, or even to sell without bringing cash to closing. A program that looks generous at purchase can look different if you need to move in three years.

 6. What does it actually pay for?

Some programs cover only the down payment. Others also cover closing costs. A few are even designed to help finance energy upgrades such as a solar system along with the assistance. That can be valuable if you want those upgrades, but it adds another layer to the repayment and refinance picture, so ask exactly how it’s secured and repaid.

Compare total cost, not just the assistance amount

The only reliable way to choose is to look at every realistic scenario side by side. Ask your lender for a total cost analysis that projects how each option plays out if you stay five years, move in three, or refinance when rates change. That should include the first mortgage rate each program requires, mortgage insurance, the assistance balance and any interest on it, and your estimated equity at each point.

Sometimes the program with the biggest assistance amount isn’t the cheapest over time. Sometimes no assistance at all, with a slightly lower down payment and a conventional loan, comes out ahead. You only know by running the numbers.

Frequently asked questions

Is down payment assistance the same as a grant?

Not usually. A grant never has to be repaid. Most down payment assistance is a second loan that is forgivable, deferred or repaid over time, so the repayment terms matter.

Can I refinance if I have down payment assistance?

It depends on the program. Some require the assistance to be repaid at a refinance. Others may allow it to remain in place. Ask before you choose a program, not after rates drop.

What happens if I sell before a forgivable loan is forgiven?

In most forgivable programs, the full balance is due when you sell or move out before the forgiveness date. Confirm the exact conditions in the program terms.

Read: Down Payment Assistance for Washington State Homebuyers

Not sure which program fits your plans? Schedule a free discovery call and I’ll walk you through your options and a total cost comparison for your situation.