A down payment loan is not inherently illegal in the United States, but its legality depends on compliance with federal and state regulations. Such loans must adhere to usury laws, fair lending practices, and disclosure requirements. For example, if a loan exceeds a state’s usury cap or lacks proper transparency, it may be deemed illegal. The Consumer Financial Protection Bureau (CFPB) reports that most down payment loans are structured legally, particularly when offered by regulated institutions. However, unscrupulous actors sometimes exploit loopholes, such as charging exorbitant interest rates or hiding fees, which can lead to legal action. In 2022, the CFPB resolved 12 cases involving predatory lending, including improper down payment assistance programs, showing that non-compliance, not the loan type itself, is the primary concern. Additionally, the Federal Housing Administration (FHA) mandates that down payment loans for mortgages meet specific criteria, including a minimum down payment of 3.5% for qualified buyers. State-level variations, such as New York’s 16% usury cap versus Texas’s 10% cap, further influence legality. Data from the Urban Institute reveals that 30% of first-time homebuyers relied on down payment assistance programs in 2021, most of which operate legally under federal guidelines. Thus, while down payment loans are not illegal when properly regulated, violations of consumer protection laws or usury thresholds can render them unlawful. The key distinction lies in adherence to regulatory frameworks rather than the loan’s purpose.