It took 52-year-old social worker Nancy Peterson a combination of five different grants and low-interest loans to accumulate $80,000 for the down payment she needed to become a first-time home buyer in Seattle last summer.

Peterson’s modest income was far too low for Seattle’s soaring housing market, where the median home price is now over $700,000. Without the assistance, Peterson would have only qualified for a $100,000 purchase with a loan insured by the Federal Housing Administration (FHA).

Many middle-income people give up on purchasing a home when they cannot come up with a 20 percent down payment, but Peterson was lucky enough to have real estate agent Lindsey Sargent help spot local assistance programs. They were able to cobble together a 40 percent down payment to get a $232,000 two-bedroom condo 25 miles north of the city.

“The programs are not well understood, and there aren’t nearly enough to serve all the need,” Sargent said.

The prospect of getting outside help, or a lower down payment than the traditional 20 percent, does not occur to many.

In a 2015 Fannie Mae survey, 76 percent did not know they did not have to have 20 percent for a down payment.

With home prices rising more than wages, home buyers instead have been turning increasingly to parents and family members for help. Yet, as a general rule of thumb, if you have solid income and a good credit score over 700, you can get some conventional loans with just 3 to 5 percent down, said Peter Boomer, head of mortgage distribution for PNC Bank. And you can get an FHA loan geared toward first-time purchasers for just 3.5 percent down with a credit score as low as 640, he said. There are even loans from the Department of Veterans Affairs with no down payment, for those who qualify.

In addition, there are over 2,500 different programs that provide grants and low-interest loans for down payments and closing costs, said Rob Chrane, chief executive of Down Payment Resource which tracks them.

These are open to a wide range of incomes and make home purchases available to many first-time home buyers who think a house is out of the question, said Laurie Goodman, co-director of the Urban Institute’s Housing Finance Policy Center.

For example, in Minneapolis, income can be as high as $104,000 and $328,000 homes qualify, according to the Urban Institute. The average assistance is $9,672.

About 11.4 percent of home buyers were able to get down payment assistance in the form of loans and grants from government entities in 2018, according to the U.S. Department of Housing and Urban Development.

But navigating the programs can be overwhelming because they vary by state, county and city, with no centralized coordination at the national level. Much of the funding is local, and often tracked only by local housing agencies. Even more frustrating is that funding can run out unexpectedly and not be renewed, said Chrane.

Because of the complexity, many mortgage lenders and real estate agents do not bother searching for special programs to help first-time home buyers.

Consumers should ask at the outset for them to examples of programs cobbled together for previous home buyers.


Gail MarksJarvis writes for Reuters.