16 Loan Programs for Low-income and Minority Homebuyers

Do you really need a 20% down payment to buy a house?

No, you don’t need a 20% down payment to buy a house.

The myth persists because potential homebuyers used to have to put that much money down. The real problem with the myth is that it acts as a barrier to entry for many people stuck on the rent treadmill.

The reality: The typical down payment for first-time buyers was 8% in 2023 compared to 19% for repeat buyers, according to NAR.

Assistance programs and alternative loans are available to help get low-income buyers and buyers of color off the rent treadmill and into homeownership.

Learn more: Check out HomeLight’s Home Affordability and Down Payment calculators.

What kind of assistance programs or alternative loans are available?

The most common forms of assistance or alternative loans fall into the following broad categories:

• Down payment assistance programs
• Government-backed loans
• Low-income loans

Down payment assistance program

Down payment assistance programs help first-time homebuyers who need cash for a down payment. Closing the homeownership gap is integral to enabling communities of color to also close the wealth gap.

State, county, and city down payment assistance programs exist as well. Typically, the programs are for first-time homebuyers. One of the best ways to find a down payment assistance program near you is to consult a top real estate agent.

Another way is to search the internet for “down payment assistance programs + [your location].” A cursory search should show you the programs that may benefit you.

Government-backed loans

There are government-backed loan options for low-income households. You may be eligible for one of the following programs:

FHA loans

The Federal Housing Administration insures FHA loans with qualified lenders who will provide the following:

• Lower down payments (3.5% to 10%, depending on credit score)
• Low closing costs
• Relaxed credit score requirements (500 to 620)

You may have to pay private mortgage insurance (PMI) as a condition of an FHA loan.

An FHA 203(K) loan insures mortgages for purchasing and rehabbing a home. The 203(K) loan is best for buyers interested in buying a fixer-upper.

Good Neighbor Next Door Program

The U.S. Department of Housing and Urban Development has the Good Neighbor Next Door Program, designed for public servants willing to live in a single-family home in a revitalization area. To qualify, you need to have one of the following careers:

• Law enforcement officer
• Teacher
• Firefighter
• Emergency medical technician

Qualified buyers can receive a 50% discount on the home’s list price. The caveat is that the house has to come from HUD’s listing, and the buyer must commit to living in the home for 36 months.

USDA loans

The U.S. Department of Agriculture’s Single Family Housing Guaranteed Loan Program assists lenders in providing low- and moderate-income household loans for homes in eligible rural areas. These loans do not have a down payment requirement, but applicants must meet the following criteria:

• Cannot exceed 115% median household income for the area
• Must live in the house as the primary resident
• Be a U.S. citizen, non-citizen national, or qualified alien

VA loans

VA loans are for military service members, veterans, and eligible surviving spouses. VA guarantees a portion of the loan, and lenders provide more favorable terms. VA loans:

• Require no down payment
• Have low-interest rates
• Limit closing costs
• Eliminate private mortgage insurance (PMI)

Low-income loans

Both Fannie Mae and Freddie Mac have programs for low-income homebuyers. These loans are ideal for low-income buyers with a relatively low credit score and insufficient cash for a large down payment.

Fannie Mae HomeReady loan

The HomeReady Mortgage may require homeowners to take homeownership education if they are a first-time homebuyer. The HomeReady Mortgage enables homebuyers to make a down payment as low as 3% and has flexible funding and income rules.

Freddie Mac Home Possible loan

The Freddie Mac Home Possible Mortgage helps low-income buyers own a home. The down payment is as little as 3%, the income limit is 80% of the Area Median Income, and mortgage insurance can be canceled after the loan balance is 80% or less of the home’s appraised value.

How can I find home-buying programs in my area?

As a potential homebuyer, several programs are available to you for assistance. Below is a list of resources that may assist in finding helpful programs:

• Federal Housing Finance Agency (FHFA)
• National Association of Real Estate Brokers: Two Million New Black Homeowners Program (2Mn5)
• National Housing Conference: 3 by 30 initiative
• The U.S. Department of Housing and Urban Development (HUD) provides a database of programs by state
• State Housing Finance Agency: Select your state to find participating lenders
• USDA Multifamily Housing Loans
• Do an internet search for home-buying programs in your city or county; here are examples for Los Angeles, Topeka, and Charlotte.

Which national banks offer home-buying assistance programs?

The following national banks provide programs for low-income buyers and buyers of color. Each bank will have a brief overview of the program offered.

Bank of America

Bank of America provides the Community Affordable Loan Solution in designated Black and Latino markets. The program allows eligible people to obtain an affordable home loan.

In addition, Bank of America provides the following affordable housing programs:

• America’s Home Grant provides up to a $7,500 lender credit for closing and other home purchase costs.
• Down Payment Grant of up to $10,000 in down payment assistance in specific markets.

Citi

Citi offers their HomeRun Mortgage program. The benefits include a down payment as low as 3%, competitive interest rates, and no mortgage insurance requirement.

JPMorgan Chase

JPMorgan Chase has committed $30 billion to originate 40,000 home loans for Black, Hispanic, and Latino households, including the Chase DreaMaker Mortgage. The mortgage offers up to a $7,500 grant, a 3% down payment, and flexible credit guidelines.

Legacy Home Loans

Legacy Home is a Black-owned nationwide mortgage banking company created to help Black buyers purchase a home. The Closing the Gap loan program is piloted in six metro areas and has a 1% down payment and closing cost assistance. For more information or to see if you qualify, visit their website.

OneUnited Bank

OneUnited is the country’s first Black internet bank and the largest Black-owned bank. The Unity Home Loan offers low interest rates and low down payment requirements.

Additionally, OneUnited participates in and is a preferred lender for the following programs:

• ONE Mortgage Program in Boston
• The Boston Home Center
• The Miami-Dade Economic Advocacy Trust (MDEAT) Program

TD Bank

TD Bank has several affordable mortgage programs for low-income homebuyers. Each program has down payments as low as 3% and a minimum credit score of 620.

• TD Right Step Mortgage has no income limits for properties in low-income census tracts and no borrower-paid mortgage insurance.
• TD Home Access Mortgage: A $10,000 Lender Credit is available (for purchase only; max cashback of $2,000), and no borrower-paid mortgage insurance

U.S. Bank

U.S. Bank invested in a program called the U.S. Bank Access Commitment. It partnered with national and local nonprofits to increase homeownership education and access for racially diverse communities. Their U.S. Bank Access Home Loan offers:

• Down payments as low as 3%
• Up to $5,000 lender credit
• A fixed interest rate for the life of the loan
• Assistance funds
• Mortgage insurance paid by U.S. Bank

They also have home-buying resources that connect you with home-buying programs in their markets.

Wells Fargo

Wells Fargo is focusing on helping communities of color, with a $210 million investment and private-public partnerships with the National Urban League and UnidosUS to help Black and Hispanic communities purchase homes via “Wealth Opportunities Restored through Homeownership” (WORTH) Grants. The shift in focus is part of a strategic realignment for the bank.

Tips when applying for down payment assistance or a loan program

Understand what’s in the loan agreement

Some loans (Fannie Mae and Freddie Mac) have strict income limits and down payment requirements. Others (FHA and USDA) require you to pay for mortgage insurance, which increases the cost of your loan. When applying for these programs, you need to know what’s in the fine print.

Build up your credit score

Most down payment assistance or loan programs are available to people with low credit scores.

However, you can get better loan terms with an improved credit score. Here are some strategies you can use to build your credit score in anticipation of purchasing a home:

• Pay your credit cards
• Become an authorized user on a relative or friend’s credit card account to benefit from their credit history
• Pay your bills on time
• Dispute credit report errors
• Use a secured credit card
• Get credit for paying rent and utilities by using tools like Experian Boost

Learn more: Visit HomeLight’s resource page, Credit score guidance for homebuyers.

Lower your debt-to-income ratio

You can lower your debt-to-income ratio in one of two ways: increase your income or pay off your debts. If you have an additional flow of income via a side hustle or some other source, you can save money for a down payment and closing costs. Additionally, you can use the extra income to pay down your debt (prioritizing credit card debt) and lower your debt-to-income ratio.

Find a cosigner

Both conventional and government-backed loan programs allow you to use a cosigner. A cosigner enables you to add a person’s income to your own to qualify for a mortgage.

Partner with an experienced expert

Find a proven top agent who knows your local housing market and can navigate the many local and national down payment assistance and loan programs available to buyers of color and low-income buyers.

Q&A: More expert insights for low-income and minority homebuyers

What is the most accessible home loan?

It depends. The most important thing is to educate yourself. “Different mortgage companies have different grants available, so it’s always good to do your research and to work with an agent that’s knowledgeable,” Pittman says.

Carlton agrees that knowledge about loans and assistance programs is essential. “Explore all your options with multiple lenders. But you’ve also got to get with a Realtor® whose job is a full commitment to you, the client, and helping find any advantage possible,” Carlton says.

How much income is needed to get a suitable mortgage?

There is no magic number for your income to get a suitable mortgage. “When looking at a mortgage, you must factor in the purchase price, taxes, and other fees. No two homes are the same,” Carlton says.

Instead, get preapproval from a mortgage lender to determine how much income is needed to get a suitable mortgage. The lender will evaluate your financial situation, debt-to-income ratio, credit score, and down payment without going through an entire loan application.

How can partnering with a top expert help the homebuying process?

A top real estate agent can find programs for you, ask the right questions, and guide you to homeownership. “Buying and selling a home is very emotional, and my job is to make it as easy as possible and to educate my clients,” Pittman says. “Knowledge makes the entire process easier and limits the stress of the unknown.”

Conclusion: Clearing more paths to homeownership

Homeownership is the most common way for individuals and families to realize The American Dream. Discriminatory policies have stymied the dream of homeownership and intergenerational wealth for communities of color. There are an abundance of down payment assistance programs and alternative loans available to help combat the historical failings of governmental agencies and the real estate industry.

Trailblazing a new path away from the rooted problem requires dedicated solutions from policymakers and real estate industry professionals. Many stakeholders at the national and local level in the housing sector can close the homeownership gap and set us on course to be a more equitable society. Getting us on that course to equity and justice begins with equal access to opportunity.

A top real estate agent is a critical component in providing that access. They can research and present the best and most impactful assistance programs from private lenders and public sources. HomeLight can connect you to proven agents in your market. We analyze more than 27 million transactions and thousands of reviews so you can get started on your path to buying a home today.

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