Brokers primarily have a few different down payment assistance options: Grants, Repayable 2nd mortgages, Forgivable 2nd mortgages, BorrorSmart, and local programs.
There are a few primary ways that borrowers can access down payment assistance in the broker channel (broken down below). We have lenders that offer all of these! See our down payment assistance lender page.
Grants
A couple lenders offer grants (typically on an FHA loan) where they’ll cover some or all of the down payment. A 100% true down payment assistance grant is not repayable at any point by the borrower. These typically (but not always) have the highest rates of all three of these options.
When working with an FHA grant, make sure that when you run Desktop Underwriting (DU) to properly notate the gift as government assistance for FHA in your LOS. We note this as grants are much less likely to get DU Approve/Eligible.
PROS: A true grant, doesn’t need to be repaid!
CONS: Typically tougher to get DU to run.
Repayable 2nd Mortgages
Typically the programs that have the most lenient guidelines out there are loans with repayable 2nds. These may also have lower rates than the other programs / options depending on the market. For a repayable 2nd mortgage, the borrower will make payments on the first mortgage but also have a small 2nd mortgage for an amount of the down payment (or sometimes more to help cover some broker compensation or closing costs).
PROS: Usually most lenient in qualification / DTI / income limits.
CONS: Borrowers have to repay payment in form of a 2nd mortgage.
Forgivable 2nd Mortgages
A forgivable 2nd mortgage is another common way of providing assistance to borrowers. These programs typically can be stricter on DTI, etc and commonly will have slightly higher rates than its repayable counterpart.
The assistance is often referred to as a “silent” 2nd because no payments are required. This is not legal advice but some compliance companies recommend using the word “silent” in marketing. Typically these loans will need to be repaid if the borrower pays off the first mortgage (refinancing, selling, etc) within a certain timeframe (commonly 36 or 60 months).
PROS: Eventually these funds can be forgiven.
CONS: Sometimes these are more restrictive guidelines than repayable 2nds. If you try to refinance before fully forgiven, borrower will likely have to pay off some or all funds.
Freddie Mac BorrowSmart(SM)
This program was launched in 2022 and offers a small amount of assistance depending on your income level (following Home Possible income limits and lower). This is able to offer similar rates to regular conventional and Home Possible loans. As of 2022, they offer $1250 - $2500 in assistance depending on income but you get the best rates.
PROS: Best rates typically
CONS: Least amount of assistance. Makes sense for clients with down payment and conventional credit scores.
Local Government Programs
There are specific states, cities, communities that do have localized down payment assistance. These can range in assistance amounts, qualifications, and availability widely. Many (but not all) of the state specific run programs are not available for the wholesale channel due to contracts excluding the broker community by the administrator; this can vary by state to state and something that the Broker Action Coalition Political Action Committee (BACPAC) is trying to help change as brokers can help even more consumers with these programs.
