State Homeownership Assistance Programs for Low- and Moderate-Income Families

An Overview of State Homeownership Assistance

State-level homeownership assistance programs help low- and moderate-income households overcome the two biggest barriers to buying a home: the down payment and closing costs, and access to affordable mortgage financing. Most states operate these programs through their housing finance agency, often in partnership with local governments and HUD-approved counseling agencies.

Core Program Components

Most state homeownership assistance programs include:

• A below-market fixed-rate mortgage, often FHA, VA, USDA-RD, or conventional
• Down payment and/or closing cost assistance as a grant, forgivable loan, or second mortgage
• Income limits typically set at 80% to 120% of area median income (AMI)
• Purchase price limits tied to local housing markets
• Required homebuyer education or counseling

Income Eligibility

Federal HOME Investment Partnerships funding, a major source of homeownership assistance dollars, requires that beneficiaries not exceed 80% of area median income. Many state programs extend beyond HOME by layering state resources and program-related bond proceeds, allowing them to serve moderate-income buyers up to 100% or 120% of AMI depending on the product.

Examples of State Programs

Examples of state-level homeownership programs include:

• Ohio Housing Finance Agency (OHFA) offers 30-year fixed-rate conventional, FHA, VA, and USDA-RD loans with down payment assistance, designed especially for homebuyers with low and moderate incomes.
• Oregon Housing and Community Services offers a Down Payment Assistance program for first-time and first-generation homebuyers at or below 100% of area median income.
• Many other state housing finance agencies offer comparable programs, with variations in income limits, purchase price caps, and assistance amounts.

Cities and counties also operate layered programs. For instance, Los Angeles County's Affordable Homeownership Program (AHOP) and Columbia, Missouri's Homeownership Assistance Program provide additional down payment aid on top of state products.

Forms of Down Payment Assistance

Down payment assistance typically comes in one of three forms:

• Grants: non-repayable funds that reduce the cash required at closing.
• Forgivable second mortgages: recorded liens that are forgiven after a set number of years of continued occupancy, often 5 to 10 years.
• Deferred or amortizing second mortgages: repayable when the home is sold, refinanced, or no longer the primary residence, or through small monthly payments.

Each form has tradeoffs for the buyer in terms of flexibility, tax treatment, and obligations if life circumstances change.

Homebuyer Education Requirement

Most homeownership assistance programs require completion of a HUD-approved homebuyer education course. These courses cover topics including mortgage basics, budgeting, credit management, homeownership responsibilities, and foreclosure prevention. Courses can be completed online or in person through HUD-approved housing counseling agencies.

Stacking Federal, State, and Local Aid

Eligible buyers can often stack multiple sources of assistance. A typical transaction might include:

• An FHA first mortgage originated through the state housing finance agency
• State down payment assistance as a second lien
• A local HOME- or CDBG-funded closing cost grant
• A lender-paid or employer-assisted additional contribution

With careful planning, these layered sources can reduce the out-of-pocket cash required at closing to a few hundred dollars or less.

Getting Started

Prospective buyers should start by identifying their state housing finance agency, often found through NCSHA's directory or a simple search for the state's housing finance authority. From there, buyers can connect with a HUD-approved counseling agency and a participating lender to pre-qualify and identify the right combination of products for their situation.