Mortgages & Home Loans Financing Your Home Purchase How Down Payment Gift Assistance Programs Work By Janet Wickell Janet Wickell Janet Wickell is a mortgage and home loans expert who has written about topics including real estate/real estate resources and financing your home purchase. She co-owned a real-estate agency in North Carolina and is the author of "The Everything Real Estate Investing Book." learn about our editorial policies Updated on November 12, 2021 Reviewed by Doretha Clemon Reviewed by Doretha Clemon Doretha Clemons, Ph.D., MBA, PMP, has been a corporate IT executive and professor for 34 years. She is an adjunct professor at Connecticut State Colleges & Universities, Maryville University, and Indiana Wesleyan University. She is a Real Estate Investor and principal at Bruised Reed Housing Real Estate Trust, and a State of Connecticut Home Improvement License holder. learn about our financial review board Fact checked by Julian Binder Fact checked by Julian Binder Julian Binder is a fact checker, researcher, and historian. They were the recipient of the North American Studies Book Prize (2016, 2017), and they have previous experience as an economics research assistant. They have also worked as a writer and editor for various companies, and have published cultural studies work in an academic journal. As a fact checker for The Balance, Julian is able to utilize their experience as an editor and economics research assistant. Their role as fact checker is to review articles for accuracy, update data as needed, and verify all facts by citing trusted sources. learn about our editorial policies Share Tweet Pin Email Photo: Max Oppenheim / Getty Images Down payment gift assistance programs help homebuyers cover down payment and closing costs. Potential homebuyers who can make a house payment with no difficulty sometimes can't buy a house because they don't have the funds required for a down payment and closing costs. Prospective buyers who don't have the funds to close on a home might consider using a down payment gift assistance program, sometimes called a down payment grant program. Typical assistance seems to range from 1% to 5%, and there are no minimum or maximum income requirements for buyers, but there may be top limits set on the sales price of homes. Key Takeaways Down payment gift assistance programs help homebuyers cover down payment and closing costs, typically from 1% to 5%.Home sellers can help buyers pay closing costs by giving a portion of their proceeds back to the buyer at closing. A buyer who needs help will likely pay closer to (or more than) the asking price; in return, they can negotiate help from the seller.Your lender can help you choose a down payment assistance program and explain how your offer to purchase should be worded Down Payment Gift Assistance Explained Home sellers can help buyers pay closing costs by giving a portion of their proceeds back to the buyer at closing. The amount of seller assistance allowed depends on the buyer's loan. Sellers are prohibited from giving homebuyers down payment funds, but gift assistance programs provide a workaround. The sellers enroll their house in a suitable program and contribute an amount equal to the assistance their buyer will receive at closing plus a fee—typically 0.75% of the home's sales price. When the transaction closes, the down payment funds are wired from the gift assistance program to the closing agent. The seller has no part in the transfer of funds. Seller Incentive Home sellers usually price their homes to include some room for negotiation. What matters to sellers is how much money they take away from the closing table. A buyer who has the funds to close may get a better deal on the house, while a buyer who needs help will pay closer to (or more than) the asking price, but in return, can negotiate help from the seller. This is referred to as a seller assist program. Sellers cannot use the gift as a charitable contribution, but consult with a tax professional as it may be deductible as a selling expense. Usually, the lender will allow a seller to assist with up to 3% of the sales price, but in a handful of loans, that seller assist can be 6%. This means that if you are buying a home worth $300,000, a seller assist of 3% could credit you with $9,000 to pay closing costs—which are paid as a separate cost of the transaction and are not part of the purchase price. Home Appraisal Value One thing you must keep in mind is the home's appraisal value. The lender will not allow gift funds that result in a loan that exceeds the appraised value of the home. If you're working with a real estate agent, they can help you determine if the home is realistically priced and will appraise where it should. Your lender can help you choose a down payment assistance program and explain how your offer to purchase should be worded to ensure compliance with its underwriting guidelines. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. U.S. Congress. "Public Law 110–289—July 30, 2008," Pages 2831-2832. Internal Revenue Service. "Charitable Contribution Deductions."