Online lenders do offer down payment information, but it works differently than traditional bank programs
Online mortgage lenders — companies like Better.com, may provide Rate, and LoanDepot — market down payment information as part of their loan products. Most of them do not give you money for a down payment. Instead, they roll the information into your mortgage itself, meaning you borrow the down payment amount as part of your total loan. This is fundamentally different from a grant or a gift, because you repay it with interest over 15, 20, or 30 years.
Some online lenders partner with down payment information programs run by nonprofits or state housing agencies. When they do, they may help you navigate those programs as part of the loan process. Others offer what they call "down payment information" but are really offering a higher loan amount or a lower interest rate if you meet certain conditions. Understanding which type you are looking at matters, because the cost to you is very different.
Key Takeaways
- Most online lenders do not give you down payment money; they lend it to you as part of your mortgage, so you pay interest on it for decades.
- Some online lenders connect you to nonprofit or state programs that do provide grants or forgivable loans, but this varies by lender and by your state.
- Online lenders often advertise down payment information to attract borrowers, but the actual terms — whether it is a loan, a grant, or a rate reduction — differ widely.
- Comparing what you actually owe at closing and over the life of the loan is more useful than comparing marketing language about "information."
- Traditional banks, credit unions, and state housing finance agencies often have down payment information programs with clearer terms than online lenders.
How online lenders structure down payment information
The most common structure is a piggyback loan or second mortgage. The online lender gives you a first mortgage for 80% of the home price, then a second mortgage for 10% or 15%, which covers part or all of your down payment. You make two monthly payments — one on each loan — and you pay interest on both. The second mortgage often has a higher interest rate than the first, and it may have a shorter term (5 to 10 years instead of 30).
Another structure is a single loan with a higher amount. The lender finances 95% or 97% of the home price instead of the standard 80%, and you use the extra borrowed money as your down payment. You pay mortgage insurance (called PMI, or private mortgage insurance) on the full loan amount because you are borrowing more than 80% of the price. Over time, this can cost more than a traditional down payment information grant.
A third option, less common but offered by some online lenders, is a connection to a nonprofit down payment information program. The lender may partner with organizations like NeighborWorks or local community development financial institutions (CDFIs) that offer grants or forgivable loans. In this case, you receive money that you do not repay, but the lender handles the coordination and you may pay a fee for that service.
Which online lenders partner with information programs
Online lenders do not all offer the same programs. Some, like Better.com and may provide Rate, advertise partnerships with down payment information nonprofits in certain states. Others focus only on piggyback loans or higher loan amounts. Before you start the process with any lender, ask directly: "Do you have partnerships with down payment information grants or forgivable loan programs, and if so, which states do they cover?"
The programs available also depend on where you live. States like California, New York, and Texas have their own down payment information funds that some online lenders can connect you to. Other states have fewer options. A lender's website may list programs for one state but not yours, so you need to ask about your specific location.
If an online lender does not offer a partnership with a grant program, you can still research programs on your own. Your state housing finance agency (search "[your state] housing finance agency") maintains a list of down payment information programs. You can then bring that information to any lender — online or traditional — and ask whether they will work with it.
The real cost of borrowed down payment information
When an online lender lends you your down payment instead of connecting you to a grant, the cost adds up quickly. If you borrow $40,000 as a down payment on a $400,000 home, you are paying interest on that $40,000 for 30 years. At a 7% interest rate, that $40,000 costs you roughly $94,000 in total payments (principal plus interest). A grant of $40,000 costs you nothing.
Piggyback loans often have higher interest rates on the second mortgage, sometimes 1% to 2% above the first mortgage rate. If your first mortgage is 7%, your second might be 8% or 9%. This makes the second loan even more expensive over time.
Mortgage insurance (PMI) on a high-loan-to-value mortgage also adds cost. If you borrow 97% of the home price, you pay PMI until you have paid down the loan to 80% of the original price. Depending on the loan amount and your credit score, PMI can run $200 to $500 per month. Over 10 years, that is $24,000 to $60,000 in insurance alone.
Comparing online lenders to other sources of down payment help
Online lenders are not the only place to look. Traditional banks and credit unions often have down payment information programs with clearer terms and sometimes lower costs. State housing finance agencies run programs that offer grants or forgivable loans — money you do not repay. Nonprofits like NeighborWorks and local CDFIs offer information directly, without requiring you to use a specific lender.
The advantage of using an online lender is speed and convenience — everything happens in one place, and the process is often faster than coordinating with multiple organizations. The disadvantage is that you may end up borrowing money instead of receiving a grant, which costs you significantly more over time.
A practical approach: research down payment information programs in your state first (through your state housing finance agency or through 211.org). Once you know what programs exist and what they offer, you can then shop for a lender — online or traditional — who will work with those programs. This way, you are comparing the actual cost of information, not just the marketing language.
Questions to ask an online lender about down payment information
Before you commit to an online lender, get specific answers to these questions in writing:
- Do you offer partnerships with down payment information grants or forgivable loan programs? If yes, which ones, and which states do they cover?
- If I use your down payment information, will I be borrowing the money (and paying interest), or receiving a grant?
- What is the interest rate on any second mortgage or piggyback loan?
- What is the term (how many years to repay) on any second mortgage?
- Will I pay mortgage insurance (PMI), and if so, how much per month and for how long?
- What is the total cost of your down payment information option compared to a traditional 20% down payment?
Ask these questions of at least two or three lenders — online and traditional — so you can compare the actual numbers, not the marketing claims.
Frequently Asked Questions
Can I use an online lender's down payment information if I have bad credit?
Online lenders often advertise that they work with lower credit scores, but down payment information programs (whether through an online lender or elsewhere) usually have credit score minimums, often 580 to 620. Some programs are more flexible than others. Ask the lender what credit score they require for their down payment information option specifically, not just for a mortgage in general.
Is down payment information from an online lender taxable income?
If the information is a grant or forgivable loan, it is generally not taxable. If it is a loan you repay, it is not taxable either — it is a loan, not income. However, some forgivable loans become taxable if you sell the home within a certain period (often 5 to 10 years). Ask the lender or program administrator whether the information has any tax consequences, and get the answer in writing.
What happens if I use an online lender's down payment information and then want to refinance?
If you have a piggyback loan (a second mortgage), refinancing becomes more complicated. You would need to refinance both loans, and the second lender may charge higher rates or require you to pay off the second mortgage in full. Ask the lender upfront what refinancing looks like with their down payment information structure, because it can affect your options later.
Can I combine an online lender's down payment information with a state or nonprofit program?
Sometimes yes, sometimes no. Some programs allow stacking (using multiple sources of information), while others do not. This is a question for both the online lender and the nonprofit or state program. Get written confirmation from both before you proceed, because the rules vary widely.