Essential First-Time Homebuyer Grants and How to Qualify

For many first-time buyers, the biggest obstacle to homeownership is not the monthly mortgage payment. It is getting to closing in the first place.

A down payment, closing costs, prepaid expenses, moving costs and the need to keep some savings in reserve can add up quickly. The good news is that qualified buyers may have access to first-time homebuyer grants and other assistance programs that can reduce some of those upfront costs.

The key is understanding what assistance actually exists, how it works and when to start looking for it.

A “Grant” Is Not Always a Grant

First-time homebuyer assistance comes in several forms, and the differences matter.

A true grant generally provides money toward eligible homebuying expenses without requiring traditional monthly repayment. Some programs, however, come with occupancy requirements or other conditions that buyers must meet.

Other programs provide assistance through a second mortgage. Depending on the program, that loan might have a low interest rate, no interest, deferred payments or a balance that is forgiven over time when certain requirements are satisfied.

Freddie Mac notes that state, county and city governments offer down payment assistance programs, with available amounts and requirements varying by location and borrower qualifications. Assistance can include grants, second mortgage loans and, in some areas, tax-related benefits.

That is why buyers should look beyond the word “grant.” A program that does not technically use that label could still make purchasing a home significantly more manageable.

Where Does First-Time Buyer Assistance Come From?

There is no single national application that unlocks every first-time homebuyer grant.

Programs can come from state and local housing finance agencies, municipalities, counties, nonprofit organizations, employers and other approved sources. Fannie Mae guidelines, for example, recognize grants from sources that can include employers, municipalities, states, counties, housing finance agencies, nonprofits and certain federal or regional organizations.

HUD also directs prospective buyers toward homebuying programs available in their states and HUD-approved housing counselors who can help buyers understand their options.

This local component is important. Two buyers with similar incomes and credit profiles could discover different assistance opportunities simply because they are purchasing homes in different communities.

What Can the Money Be Used For?

Depending on the program, assistance may be available for a down payment, closing costs or both.

That distinction can change a buyer's home search considerably.

Imagine that you have saved enough for the minimum down payment on a mortgage but doing so would leave very little money for closing costs. Assistance that covers part of those costs could allow you to preserve more of your savings for moving expenses, repairs or the unexpected costs that naturally come with owning a home.

Some buyers may also be surprised by how little they actually need for a down payment before assistance is considered. Certain conventional financing options permit eligible buyers to purchase with as little as 3% down, while FHA financing can allow down payments as low as 3.5% for qualified borrowers.

The old assumption that everyone needs 20% down can cause would-be homeowners to postpone buying without first exploring their actual options.

Who Qualifies for First-Time Homebuyer Grants?

There is no universal qualification formula.

Programs can establish requirements involving household income, credit, purchase price, property location, occupancy and the type of mortgage being used. Some assistance is reserved for particular communities or professions. Others are designed specifically for low- or moderate-income households.

Homebuyer education may also be part of the process. Certain mortgage programs require first-time buyers to complete an approved homeownership education course.

Buyers should also avoid assuming they earn too much or have saved too much to qualify. Eligibility rules differ widely enough that it is worth checking before ruling yourself out.

Likewise, qualifying as a “first-time buyer” does not always mean you must have never owned property in your life. The definition can vary by mortgage or assistance program, so someone who owned a home years ago may still qualify under certain guidelines.

Start With the Money Before Starting With the Houses

It is tempting to begin a home search by scrolling through listings and scheduling showings. For a buyer hoping to use financial assistance, reversing that order can be much more productive.

Start by talking with a knowledgeable mortgage professional about your financing and asking specifically about down payment and closing cost assistance.

Do not stop at, “What interest rate can I get?”

Ask questions such as:

• Are there assistance programs available where I want to purchase?
• Can those programs be combined with my mortgage?
• Are there income or purchase-price limits?
• Is the assistance a grant, forgivable loan or repayable second mortgage?
• Are there occupancy requirements?
• Do I need to complete homebuyer education?
• Will using assistance affect my timeline or the homes I can consider?

Once you understand the answers, your real estate agent can help shape the home search around a more realistic picture of your purchasing power.

Assistance Should Support Your Budget, Not Stretch It

Receiving several thousand dollars toward a home purchase can be exciting, but assistance should not become a reason to buy beyond your comfort zone.

A home still comes with a monthly mortgage payment, property taxes, insurance, utilities and maintenance. Condominiums and certain communities may also have association fees.

The strongest use of homebuyer assistance is often not “How much more house can I buy?” but “How can this help me purchase responsibly while keeping my finances comfortable?”

Preserving some savings after closing can be especially valuable. Houses have a habit of introducing their new owners to expenses at inconvenient times, from a malfunctioning appliance to a repair that was not on the immediate to-do list.

Frequently Asked Questions

Are first-time homebuyer grants really free money?

Some assistance is structured as a true grant, while other programs provide forgivable, deferred or repayable loans. Always ask what happens if you sell, refinance or move before a required period ends.

Do I need a 20% down payment before buying my first home?

Not necessarily. Some eligible conventional mortgages allow down payments as low as 3%, and FHA loans can permit qualified borrowers to put as little as 3.5% down.

Can assistance cover closing costs too?

Potentially. Programs differ, but down payment and closing cost assistance are both available to qualifying borrowers. Fannie Mae recognizes several eligible sources for assistance with these upfront expenses.

Where should I look for programs?

A lender familiar with assistance programs is a good starting point. Buyers can also explore state and local housing agencies and HUD-approved housing counseling resources.

Should I find a house before applying for assistance?

It is usually more useful to investigate financing and potential assistance early. Knowing your eligibility, available funds and program requirements can help you search for homes within the right parameters.

Find Out What Your First Home Could Look Like

Buying your first home may be closer than your savings account alone suggests. Berkshire Hathaway HomeServices Stouffer Realty can help you understand the homebuying process, connect with the appropriate professionals and begin a search based on a realistic budget. Talk with a local real estate professional and explore the assistance options that may help turn your first set of house keys into a real possibility.