See what mortgage you qualify for
For most people, a home is the largest single purchase they’ll make in their lifetimes. It comes with upfront expenses like closing costs, down payments and potential repairs or upgrades. These additional expenses can easily add tens of thousands of dollars to the upfront costs of buying a new home.
You may think that saving the amount of money you might need to buy a house is a heavy lift, especially in a market where the price of everything is climbing. But that’s not the whole story.
The good news? First-time home buyers can get some relief in the form of first-time home buyer grants. These grants offer money from federal, state and private organizations that can help make your home purchase more affordable. Best of all, it’s money you don’t have to pay back.
Finding the right grant may take a little legwork and some planning, so it’s a good idea to learn more about the available options and how they work.
How Do First-Time Home Buyer Grants Work?
If you can qualify for a home buyer grant, you get funds that you can use to reduce qualified home buying expenses, including these:
- Down payments
- Closing costs
- Repairs to a fixer-upper
- Some building costs if you’re buying new construction
The money for these grants comes from a variety of sources. The federal government provides a lot of funds but doesn’t necessarily administer the grant programs. Instead, they funnel the funds to states, counties and other locations, and the governments of those locations create grant programs for residents.
In some cases, nonprofit agencies or other specialty organizations may run grant programs.
When looking at grants to help make a home purchase more affordable, make sure you read the fine print for every resource. Some down payment assistance programs initially look like grants but require you to pay back some or all of the money.
How Do You Qualify For First-Time Home Buyer Grants?
Qualifications for grants vary and depend on factors like income, location, family size and even the home you want to buy. Many grant programs are designed to help people with lower-than-average incomes, low credit scores or minimal available savings. But be aware that not all first-time home buyers are eligible for grants.
One of the first hoops you’ll jump through if you want to get grants as a first-time home buyer is to get approved for a mortgage loan. All grant programs require this step before they’ll consider you for a grant.
They want to know if you are eligible for a loan right away because if you can’t get a loan, the grant program can’t really help you.
Getting prequalified for a mortgage also lets you know how much loan you can get. Use a mortgage calculator to figure out how much house you can afford before you apply for a grant.
Every grant program for first-time home buyers has different requirements. Let’s explore some of the most common.
- Minimum down payment: Programs may not help cover down payments if the grants wouldn’t be a large enough percentage of the purchase price. They may also require that borrowers put up a certain amount of the down payment themselves.
- Minimum credit score: Many programs require a minimum credit score. If you’re afraid that puts you out of the running for a grant, just know that you can find other options if your credit is a notch or two under stellar.
- Maximum debt-to-income (DTI) ratio: Your DTI is fixed monthly expenses divided by your gross monthly income. Most programs won’t give grants to borrowers if their debt-to-credit ratio is too high. If you want to see what your current DTI is you can use our DTI calculator.
- Income limits: Your total household income may need to be more than their minimum income requirements or less than certain maximum income thresholds. They may look at both the amount you earn and your employment or income history to determine where your income falls within those limits.
- Home price limits: Programs may offer down payment assistance and other resources only to borrowers who want to buy homes within certain price ranges.
- Residence status: You typically can’t use these programs if you’re buying property you plan to rent out. You must live in the home as your primary residence.
- Home-buyer education course: Some programs require applicants to take an education course, which can often be completed online.
- Loan type: Some grants require you to work with a lender that offers government-backed loans. Others may only work with you if you go for a conventional mortgage.
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What Are the Best First-Time Home Buyer Grants or Other Assistance Options?
Financial assistance options are available at the national, state and local levels. First-time home buyers should do their research to find as many potential programs that might apply to them as possible. Talk to your real estate agent or mortgage broker about options they’re familiar with and do some research online.
We’ve listed some of the top options for first-time home buyer grants to help you get you started.
National Homebuyers Fund (NHF)
The National Homebuyers Fund administers several programs to help first-time home buyers, including the NHF down payment assistance program (NHF DPA). Here are a few specifics about this program:
- Qualified candidates can get up to 5% of the total mortgage amount in assistance, which can be used for help with closing costs or the down payment.
- You don’t have to be a first-time buyer to qualify.
- The program has flexible credit score and DTI requirements and the income limits are higher than with many other options.
- You can use this program alongside many mortgage types that you may be familiar with, including Federal Housing Administration (FHA), Department of Veterans Affairs (VA), U.S. Department of Agriculture (USDA) and conventional mortgages.
HomePath®Ready Buyer™ Buyer Program
This is a program from Fannie Mae. You have to qualify as a first-time home buyer for this program and go through an education course. Other important points you need to know include:
- The program covers up to 3% of the total mortgage amount that can be used for closing costs.
- You may have to pay a $75 fee for the education course, but it’s reimbursed to you at closing.
- The program only works if you’re buying a primary residence.
Good Neighbor Next Door
The Good Neighbor Next Door is a program from the Department of Housing and Urban Development. Technically, this isn’t a grant program – it’s a loan forgiveness program. We’ve listed some details about how it works.
- You must be a teacher (pre-K through 12th grade), firefighter, law enforcement officer or emergency medical technician.
- The home you’re buying must be eligible for the program.
- For the loan to be forgiven, you must live in the home for at least 36 months.
The program provides up to a 50% discount off the list price of the home you purchase. You sign a secondary mortgage for that amount, but there are no payments or interest on the loan unless you don’t live in the home for 36 months.
Mortgage Tax Credit Certificates (MCCs)
The mortgage tax credit certificate (MCC) program isn’t a grant that gives you upfront money to help pay for closing costs – it’s a tax credit.
The MCC converts a portion of the interest you pay in the first year to a refundable tax credit. Depending on your interest rate and monthly payment, this could result in a sizable reduction in your tax bill the first year you own a home.
That’s a pretty sweet deal and it may make it easier for you as a first-time home buyer to budget for those big home-related expenses.
Here are the criteria you need meet to qualify for this tax credit:
- Buy a home that falls within your state’s MCC limitations
- Have an income within your state’s MCC limitations
- Be a first-time home buyer
- Buy the home as your primary residence
- Complete any required home buyer education in your state
How Do You Apply For a First-Time Home Buyer Grant?
- Start with research: Check with your state or local housing agency for programs. You can also look at the HUD directory of state grant options. Ask real estate and mortgage professionals if they have information to share. It might be useful to talk to local credit unions and banks about changes in financial programs that support home buyers. And research new local and national legislation since the real estate industry is undergoing a lot of changes.
- Review the options: Look over the requirements of each program and weed out the ones you don’t qualify for. Decide which of the remaining programs are the best options.
- Complete application paperwork: Your local housing agency may be able to help you through the process.
- Gather and submit documentation: Gather any documentation required to verify your income plus any other information the program requires and submit it with your application.
Grants vs. Down Payment Assistance Programs
Down payment assistance programs are quite common, but they are different from grants. These programs include short- or long-term loans that let people borrow enough money to cover part of a required down payment on a new home.
So, as with all loans, but not like grants, borrowers have to repay the loans. Some loan programs can be forgiven but borrowers have to complete certain steps before that happens. Other loans have advantageous repayment options.
Some types of down payment assistance programs include:
- Forgivable loans: Forgivable loans are typically tied to the home as a second mortgage and can be forgiven if you satisfy program requirements. Remaining in the home for a certain amount of time is a common requirement. If you leave the home too soon or don’t meet other requirements, you must pay back the loan or the amount you owe may be taken out of any proceeds if you sell your home.
- Deferred payment loans: Some programs let you borrow money to cover qualified home-buying expenses and pay that money back at a later time.
- DPA second mortgages: Also known as soft seconds, these loans don’t have to be paid back until you refinance the mortgage or sell the house.
All of these first-time home buyer resources come with qualifications – aka, the hoops you have to jump through. The same is true for grants.
Granting Your Wish of a New Home
No bottle to rub here, and no genie with tricky wish-granting abilities. Granting your wish of a new home comes down to dotting the I’s and crossing the T’s on all the paperwork.
Take your time with this process and reach out to agencies and professionals for help whenever possible to ensure grant applications are accurate and complete. This is definitely a time when getting it right the first time.
Home is worth it.
The mortgage process can be exciting, and we’ll be with you all the way. Take the first step to owning a home. You’ll be glad you did.
National Homebuyers Fund. “Homeownership Programs.” Retrieved February 2022 from http://www.nhfloan.org/programs.html
Fannie Mae. “Fannie Mae Launches HomePath Ready Buyer Education Program for First-Time Homebuyers.” Retrieved February 2022 from https://www.fanniemae.com/newsroom/fannie-mae-news/fannie-mae-launches-homepath-ready-buyer-education-program-first-time-homebuyers
U.S. Department of Housing and Urban Development. “HUD Good Neighbor Next Door Program.” Retrieved February 2022 from https://www.hud.gov/program_offices/housing/sfh/reo/goodn/gnndabot
Federal Depositors Insurance Corporation. “Mortgage Tax Credit Certificate (MCC).” Retrieved February 2022 from https://www.fdic.gov/resources/bankers/affordable-mortgage-lending-center/guide/part-2-docs/mortgage-tax-credit.pdf