Between paying the rent and balancing other financial responsibilities, finding extra money for a down payment on your first home can seem impossible. A first-time home purchase grant can help.
How does the aid for the purchase of a first home work?
You will find many options for financial assistance as a first-time home buyer, but there is one key thing that separates grants from other forms of assistance: you never have to pay back the money. Grant funds can help you cover a down payment on a home and any closing costs you’ll need to pay before you move in. Some grant programs are also available for those who have already purchased a home.
Because it is essentially free money, First-Time Home Buyers are different from other down payment assistance programs, which can help you afford a home in the present, but with certain conditions for the future. Here is an overview of these other types of assistance programs:
- PAD second mortgages – A second DPA mortgage – the DPA stands for “down payment assistance” – is available from housing finance agencies in many states. In a DPA second mortgage program, you will apply for a 30-year mortgage to finance the house, and then another mortgage for a lower amount to help pay the down payment or closing costs. Just like the first mortgage, this second loan comes with an interest rate (although it can be lower to avoid accumulating high finance charges), and you will pay it back over a period of time.
- Deferred payment loans – Instead of forcing you to immediately start repaying down payment assistance funds, some programs allow you to defer those payments until you sell your home, or refinance or pay off your mortgage. The aid will not earn interest in the meantime, so the amount you owe will not increase.
- Forgivable loans – Grant loans are the closest cousins to grants because they can end up being free, but only if you live in the house long enough. For example, you could borrow $ 5,000 to make a down payment, with the loan being reduced each month over 10 years. If you move before the end of this period, you will have to repay part of the loan. If you stay in the house for 10 years, however, it will be completely forgiven.
5 home ownership scholarships
1. HomePath Ready Buyer Program
The HomePath Ready Buyer Program is a home buying program from Fannie Mae, one of two government-sponsored companies that support the mortgage market. With this program, you can get up to 3% of the purchase price of your home to help cover closing costs. However, you are limited in what you can buy – you can only qualify if you buy HomePath property, a foreclosed home owned by Fannie Mae. You will also need to take a training course for home buyers.
2. National Home Ownership Fund
The nonprofit National Homebuyers Fund sponsors down payments and grants for closing costs that can total up to 5% of the purchase price of your home. You don’t have to be a first-time buyer to qualify, but you do need to find a mortgage lender who participates in the program. You can call the organization for help finding lenders in your area at 866-643-4968.
3. Bank of America Grant Programs
Bank of America offers two grant options to help you with a down payment and closing costs: America’s Home Grant and Down Payment Grant programs. America’s Home Grant provides up to $ 7,500 in lender credits for closing costs, while the down payment grant provides up to $ 10,000 in down payment assistance. However, you will need to get your mortgage from Bank of America, and for the down payment grant there could be tax implications.
Read Bankrate’s review on Bank of America Mortgages.
4. Chase Purchase Exchange
If you buy a home in what the government defines as a “low to moderate income census tract,” you may be eligible for a grant of up to $ 2,500 from Chase Bank. These funds are mainly applied to closing costs (but can also be used towards your down payment, depending on how the costs unwind) and can be considered taxable income. Your loan officer can help you determine if your location and situation qualify.
Read the Bankrate Chase Mortgage Review.
5. Good Neighbor Next Door Program
While the Good Neighbor Next Door program technically falls under the “forgivable” category, the potential free money is so large that we’ve included it here. Available to law enforcement officers, teachers, firefighters, and emergency medical technicians, this U.S. Department of Housing and Urban Development program offers a 50% discount on homes in revitalization areas. designated. As long as you live there for three years, you get the property for half the list price without having to repay that discount. As with the HomePath program, however, you won’t have the freedom to buy just any home.
In addition to these programs, keep a close eye on the Downpayment Toward Equity Act. Introduced in the summer of 2021, this bill would help first-generation first-time homebuyers obtain $ 25,000. As it is, you have to be the first member of your family to buy a home to be eligible.
How to Qualify for a First-Time Home Buyer’s Grant
Not all first-time home buyers are eligible for First-Time Home Buyers. These programs tend to be aimed at those who can be classified as low or moderate income borrowers, and this definition depends on your income and where you want to live. Although eligibility requirements vary, here are some things common to most grant programs:
- Income limits: Many programs designate households earning 80% or less of the region’s median income (MAI) as “low income” and limit the program to those in this range. Income limits also vary depending on the number of people in the household.
- House price limits: You may also be limited to a certain budget. Again, these limits vary widely depending on the local housing market.
- Your contribution to the purchase: While you may be eligible for purchase assistance, many grants stipulate that the purchaser must also participate. A current request is either 1% of the purchase price or $ 1,000 (whichever is greater).
- Your residence status: Usually, you can only get a grant to help you buy a house that you will actually make your primary residence, not one that you will rent to someone else.
- Additional education: Many grant programs require that you complete a training course for home buyers before receiving the funds.
How to find local or national grants for the purchase of a first home
In addition to the grant programs available nationwide, you may be able to find financial assistance from an organization closer to you (or wherever you want your home to be). A great place to start exploring your options is the State Housing Authority’s Bankrate Directory.
Also ask your real estate agent for advice. These professionals have gone through the process and can refer you to grant programs. They can also help you visit specific neighborhoods and properties that meet purchase price and zip code requirements.
When looking for a mortgage lender, don’t overlook local credit unions and community banks. Since they have roots in the region where you want to buy, they have extensive knowledge of additional opportunities that might be right for you. In fact, they can even offer their own programs. For example, the First Federal Bank of Kansas City offers eligible buyers a grant of up to $ 3,000. Illinois-based Wintrust Bank has a First-Time Home Buyer’s Grant program that helps borrowers get $ 2,000 down payment. New York-based ESL Credit Union has a matching program for black and Latin first-time homebuyers that can provide a grant of up to $ 10,500. Similar programs are available in many places; you just need to do additional research to find them.
How to apply for assistance with the purchase of a first home
Most grant programs have minimum credit score requirements. Before you apply, review your credit report and check your credit score. Once you are ready, complete your online application. You can also apply for multiple grants, so feel free to try and get more financial aid.