For many first-time homebuyers, saving up for a house is the hardest part of the homebuying process. One way to get the necessary funds to buy a home is through a first-time homebuyer grant. These grants provide funds you can use for the down payment, closing costs, or even toward the home purchase itself.
Here’s everything you need to know about getting a first-time homebuyer grant, including who’s eligible and how to apply:
What is a first-time homebuyer grant?
A first-time homebuyer grant is essentially a gift of funds to use in purchasing a home. Because it’s a grant, you typically don’t have to pay it back. Governments and private enterprises offer first-time homebuyer grants to help more residents become homeowners, which expands the tax base and can help residents build wealth as they accrue equity.
First-time homebuyers with modest incomes are the usual recipients of first-time homebuyer grants, which typically have a few requirements you need to meet in order to be eligible.
When you combine these grants with special mortgage programs for low-income or first-time homebuyers, buying a home becomes more affordable and thus, more attainable.
Types of first-time homebuyer grants
There are several kinds of first-time homebuyer grants, and they vary in who issues them and the form of assistance they give.
- State and local government grants: Many states and local governments offer assistance to their residents to boost homeownership.
- Private bank grants: Some lenders offer their own homebuyer grant programs. For example, both Chase Bank and Bank of America provide grants that can help with down payment and closing costs.
- HomePath Ready Buyer: This program from Fannie Mae provides assistance up to 3% of the purchase price of your home.
- Down payment assistance: These kinds of grants can reduce your down payment amount, making it easier to save up the amount you need to put down on a house.
- Closing cost assistance: Other grants can help you cover closing costs, which can be thousands of dollars, due when you sign your mortgage paperwork.
- Forgivable second mortgages: Some assistance comes in the form of forgivable second mortgages, which reduce the amount you need to borrow to buy a home.
- Deferred-payment loans: Other supplementary loans have deferred payments, meaning you borrow the funds and only pay back the loan when it’s time to sell and you’ve built up enough equity to cover the loan.
Other types of homebuyer aid
If you don’t qualify for one of the homebuyer grants listed above, there may be other types of assistance you can use, such as:
- Government-backed loans: Federal Housing Administration (FHA), Department of Agriculture (USDA), and Department of Veterans Affairs (VA) loans are insured by the federal government. These loans help homebuyers through more flexible credit requirements and lower down payment options. You can often combine these loans with grants or assistance from other programs.
- Mortgage rate discounts: Some homebuyer assistance programs provide discounts on your mortgage interest rate, which can lower your monthly payment, decrease your overall interest owed, and help you better afford a home.
- Discounted HUD homes: Programs like the federal Good Neighbor Next Door program from the Department of Housing and Urban Development (HUD) offer steeply discounted homes to eligible teachers and first responders.
- GSE mortgage programs: Other mortgage programs from government-sponsored enterprises (GSE) such as Freddie Mac and Fannie Mae allow you to finance as much as 97% of the cost of the home.
- Grants for repeat buyers: Some homebuyer grants don’t require you to be a first-time buyer. For example, grants from the National Homebuyers Fund (NHF) can provide down payment assistance or closing cost assistance up to 5% of the mortgage amount. If you borrow $300,000 for a home, that means you might be able to receive as much as $15,000 toward your costs through the NHF.
First-time homebuyer grant eligibility requirements
Of course, the primary consideration for a first-time homebuyer grant is whether you’re a first-time homebuyer. Unsurprisingly, if you’ve never bought a home before, you’re considered a first-time homebuyer. But the good news is that even if you have purchased a home before, you can usually be considered a first-time homebuyer again if it was bought more than three years ago.
But there are usually other first-time homebuyer requirements, too. These eligibility criteria may include:
- Income limits: Some programs set income limits, which may be relative to the median income in the county you’re buying in. “Most assistance programs have income limits to ensure they go to families or individuals with lower to moderate incomes,” said Malcolm-Wiley Floyd, co-founder and CEO of Stairs Financial, which connects first-time homebuyers from low-income and disadvantaged backgrounds with down payment assistance programs across the U.S. “Income limits are generally calculated as a percentage of area median family income (AMFI), with typical programs targeted at families within 80-120% of AMFI.”
- Minimum credit score: You may need a credit score in the low 600s or higher to qualify for a first-time homebuyer grant. For example, in Texas, buyers need a credit score of 620 or higher to use the My First Texas Home program. In Florida, buyers will need a score of 640 for the state’s assistance program.
- Financial stability: You may need to show proof of steady income and a low debt-to-income ratio (DTI).
- Home occupation: Some first-time homebuyer programs will require you to occupy the home as your principal residence.
- Geographic location: Certain first-time homebuyer grants are only available in select areas.
- Homebuyer education: You might be required to complete a homebuyer education course, depending on the grant type.
How to apply for a first-time homebuyer grant
Different states, municipalities, and businesses have different first-time homebuyer grants and programs. You can look up your state’s housing finance agency to see what programs are available in your area and the requirements to apply. (Your mortgage lender can help you find the right program for your needs, too.)
For example, if you live in California, you may be eligible for a deferred-payment down payment assistance loan of up to 3.5% of the purchase price through the state’s MyHome Assistance Program. To apply, you work directly with a loan officer who will guide you through the process.
Generally, the steps go like this:
- Gather your documents: As you would with any home loan, you’ll start by gathering important documents, which typically will include pay stubs, W2s, tax returns, and bank statements.
- Provide proof of residency: You’ll also likely need a driver’s license or government ID, plus your Social Security number.
- Fill out the application: Once you’ve connected with the loan officer or program coordinator, fill out the application.
- Complete required courses: Your grant or program may require you to complete homebuyer education courses. Your lender or program coordinator will tell you what course you need to take and how to complete it.
FAQ
Am I eligible for a first-time homebuyer grant?
You may be eligible for a first-time homebuyer grant if you haven’t purchased a home in more than three years. A mortgage specialist can help you determine if you meet other eligibility criteria, such as income.
Which grant is best for a first-time homebuyer?
The best grant for a first-time homebuyer will depend on income, the desired property, the location, and the loan type. Aim for the most assistance you can qualify for; since grants typically do not need to be paid back, the more you receive, the less you have to pay out of pocket.
What is the income limit for a first-time homebuyer grant?
The income limit for a first-time homebuyer grant is usually determined by the county you live in. California’s homebuyer assistance program, for example, sets income limits by county, ranging from $165,000 to $300,000.
How long does it take to get a grant?
From researching the right grant for you, to applying and receiving the funds, it may take weeks or months to get a first-time homebuyer grant. Your mortgage specialist will be able to give you an idea of the timeline you can expect.
What are first-time homebuyer grants used for?
First-time homebuyer grants are used to help with the cost of purchasing a home. They might be used toward the down payment, closing costs, purchase price, or mortgage points, depending on the program.
