Can you get a grant to buy a home?
Grants to buy a house? That sounds too good to be true. What’s the catch?
Actually, there isn’t one. Many people receive home buying grants every year. These are effectively gifts, which often don’t have to be repaid.
These grants come from state agencies and nonprofits in the form of down payment assistance. They’re a 100% legit and acceptable way to cover your down payment when you get a mortgage.
Really, the only hurdles are the availability of grants in your area – and your ability to qualify.
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Grants for buying a home
When we talk about grants for buying a home, what we’re really talking about is down payment assistance (DPA).
There are more than 2,500 down payment assistance programs across the United States. Some of these are grants, while others are loans that may not have to be repaid (known as forgivable loans).
The money offered can be used for your down payment as well as for closing cost assistance until you move, sell, refinance or pay down your home loan.
DPA programs often exist to help first–home buyers, low–income families, or otherwise disadvantaged buyers. However, each home buying grant program has its own eligibility requirements, and some are more wide–reaching than others.
These programs can put homeownership within reach for buyers who might otherwise be locked out of the real estate market.
Do you qualify for a grant to buy a home?
If you want a grant to buy a house, you’ll have to qualify for it. Rules vary by program, so the following is just a sample of what you’re likely to see:
- Funds are often available on a first-come-first-served basis. So be prepared to wait for funding to be replenished or contact multiple programs
- Not all down payment assistance programs (DPAs) offer grants. Many provide low– or no–interest loans that you pay down in parallel with your first mortgage. Sometimes, those loans are forgiven over time, meaning they turn into grants
- Most (but not all) DPAs help only first-time home buyers. That often means you can’t have owned a home in the last three years. If you owned a home more than three years ago you may still be eligible
- You often need to complete a few hours of housing counseling to qualify. Homeownership education courses are typically offered in conjunction with the grant program
- These grants and loans cannot be used for vacation homes or investment properties. DPA programs provide assistance to buyers needing a primary residence, meaning a home you’ll live in full time
- Many DPAs have minimum credit scores and maximum income limits. So check their terms and conditions before you apply
- The grant or loan should not be an issue with your mortgage lender. It will just want to be sure you can comfortably afford all your mortgage payments without further assistance
If the above applies to you, you may be in line for a grant low low–cost loan to buy a house. In that case, here are just a few of the programs that operate nationwide.
Local grants and loans to buy a house
Some home buying grants or DPAs are from non–profit organizations that connect people with affordable housing. But the majority of down payment grants and assistance programs come from state Housing Finance Agencies (HFAs).
These agencies receive federal grants each year to help home buyers with down payments and closing costs. They might offer aid in the form of a:
- No–interest loan
- Low–interest loan
- Forgivable loan
- Second mortgage
Unless you qualify for help from one of the sources listed below, your starting point for down payment assistance should be your local government agency or housing authority.
How do you get in touch with that? The National Council of State Housing Agencies has a webpage that lists them all with links to each HFA’s website.
Good Neighbor Next Door grants: 50% off the house
There’s one federal government program that makes all other forms of down payment assistance look insignificant.
The Good Neighbor Next Door (GNND) program provides a 50% discount on the list price of the home.
But it works only for qualified people, including:
- Law enforcement officers
- Emergency medical technicians
- Teachers working pre–kindergarten through 12th grade
In addition, you must buy a home listed for sale by the U.S. Department of Housing and Urban Development (HUD). These HUD homes are located in targeted “revitalization areas.”
If you’re in one of those occupations, and are prepared to commit to living for at least three years in a neighborhood that’s still developing, then you’re going to want to explore this program further.
Grants to buy a house from your mortgage lender
Mortgage lenders don’t typically give away cash to homeowners. But some do. So it’s worth asking about first–time home buyer programs when you’re shopping for a mortgage loan.
For example, Bank of America offers qualified mortgage borrowers help in two ways:
- Up to $7,500 for closing costs: This is mostly for nonrecurring closing costs, such as title insurance, recording fees and appraisals. But the grant may also be used to purchase discount points that buy you a lower mortgage interest rate
- Up to $10,000 for down payment assistance: But only in specified geographical areas. The actual caps are 3% of the purchase price with a maximum of $10,000, whichever is the lower
Don’t expect most lenders to be so generous. But it’s worth exploring your needs with one.
Even if your mortgage lender can’t help you itself, it may point you toward a local program that could provide worthwhile assistance.
Fannie Mae programs
Fannie Mae’s Community Seconds program offers down payment and/or closing cost assistance to eligible first–time home buyers using a Fannie Mae mortgage loan. It’s often paired with the HomeReady loan which requires only 3% down and has flexible requirements for borrowers.
Community Seconds takes the form of a second mortgage, meaning it’s an additional loan on top of the home buyer’s primary mortgage.
Depending on the type of Fannie Mae program it’s paired with, Community Seconds may offer deferred payments or be forgiven altogether.
Fannie Mae HomePath program
Another, little–known option from Fannie Mae is the HomePath program.
Via HomePath, Fannie helps buyers purchase REO (real estate owned) properties. The HomePath program supports applicants through the entire buying process, from finding and making an offer on a home to financing and closing.
The HomePath program also offers cash assistance: home buyers may receive up to 3% toward their closing costs when they complete a home buyer education course through the program.
Freddie Mac programs
The Freddie Mac Home Possible mortgage loan is designed to help first–time home buyers with lower incomes who are on the edge of qualifying for financing.
This low–income loan program offers flexible guidelines and lower barriers to homeownership. While you’ll need a 660 credit score, Home Possible only requires a 3% down payment.
The good news? You may be able to use the Freddie Mac Affordable seconds program to cover all or most of that 3% down payment.
Nearly identical to Community Seconds, the Freddie Mac Affordable Seconds mortgage program also helps lenders underwrite loans that offset closing costs and down payments with funds from non–traditional sources like non–profits and community gifts.
Affordable Seconds is also a subordinate or second mortgage that is paired with a Freddie Mac first–time home buyer loan.
Mortgage credit certificate (MCC) program: tax credits for home buyers
The mortgage credit certificate (MCC) program doesn’t directly give grants to buy a house. But it does make home buying more affordable.
That’s because an MCC lets you claim a dollar‐for‐dollar tax credit for some of the mortgage interest you pay – up to $2,000 each year.
Over the years, that can add up to serious savings. And mortgage lenders may take MCCs into account when they’re deciding how much you can borrow.
Who’s in line for this help? Well, you’ll typically be a first–time buyer on a low or moderate income. Your income will be compared with the median income in your state or area to see if you qualify.
Zero–down VA loans and USDA loans
The VA and USDA loan programs don’t include a grant to buy a house. But they do let you qualify with zero down payment – which can be almost as good.
Mortgage rates are typically below–average with these programs, too.
Only veterans, current service members, and a few closely associated groups are eligible for VA loans.
Those who qualify can buy with zero down and no mortgage insurance. As of 2020, there’s no max loan amount for VA borrowers. That possibly makes VA loans the best mortgage program out there.
USDA loans, on the other hand, have two separate requirements.
The U.S. Department of Agriculture backs these loans. It requires the house you’re buying to be in a low–population, rural or suburban area. And your household income can’t be more than 15% higher than the local median.
Also, you can only get a 30–year fixed–rate mortgage via the USDA program – not an adjustable–rate mortgage (ARM). If those apply to you, USDA financing is another excellent option.
Alternatives: Low–down–payment home loans
If you can get a grant to buy a house, you’re in great shape. Not everyone qualifies for these programs.
Even if you don’t find a grant, though, there are other loan types that can make your home purchase more affordable.
For example, FHA loans and conventional loans both have programs with low down payments and easier qualification requirements.
- With an FHA loan, you can typically buy a house with just 3.5% down and a credit score of 580 or higher. The Federal Housing Administration insures these loans, allowing lenders to offer low rates to borrowers with fair credit
- Conventional loans require a FICO score of 620 or higher, but eligible first–time home buyers can put just 3% down
Find home buying help today
Home buying help is only available to those who ask for it.
Your best resources are your local housing finance agency, your real estate agent, and your loan officer. Any of these professionals can help you understand your loan options and suggest local home buying grants.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.