How Do First-Time Homebuyer Grants Work
By Pierre Mouchette | Bits-n-Pieces
How Do Grants Work?
Grants are constructed to offset some of the purchasing costs for new buyers. These grants typically cover part of the down payment, closing costs, and, sometimes, the home's total purchase price. Grants do not require repayment if you abide by the grant terms.
Many first-time homebuyer grants result from federal funding, though the U.S. Government does not offer the loans directly. Instead, these funds are passed to the individual states and municipalities, creating grant programs for residents within their boundaries.
First-Time Homebuyer Grant Options
If you are struggling to save up for a down payment or are looking to reduce the costs of buying a home, a first-time homebuyer grant may be able to help. Below are several options for your consideration, although grant availability will vary by locale.
Good Neighbor Next Door
This grant program covers 50% of the home's list price. It is intended exclusively for public employees such as law enforcement officers, firefighters, emergency medical technicians, and teachers of grades pre-K through 12. Only specific properties qualify for the program. If you fall into one of the preceding categories and are interested in leveraging a grant, you will need to check for HUD-approved homes in your area.
Note: Good Neighbor Next Door properties often change, so check back regularly if you can not find something that fits your needs.
A few requirements of this grant include:
HomePath Ready Buyer
It is a grant program presented by Fannie Mae. HomePath provides closing-cost assistance up to 3% of the loan amount. To participate, you must take the online HomePath Ready Buyer Course, which costs $75 and runs for four to six hours. The fee is reimbursable once you purchase an eligible Home Ready house.
A few other requirements of this program include:
National Homebuyers Fund
The National Homebuyers Fund (NHF) is a grant covering part or all of the down payment or closing costs, up to 5% of the total loan amount. The program is available in all 50 states and does not have to be repaid. It is sometimes provided as a 0%-interest rate second mortgage and can be used for purchasing and refinancing a primary residence.
A few other essential details of the NHF grant include:
Mortgage Credit Certificates (MCCs)
MCCs are federal tax credits that help first-time homebuyers offset mortgage costs. Depending on the loan amount, they allow you to reduce your total tax liability up to $2,000. According to the Federal Deposit Insurance Corporation (FDIC), MCCs can even help you more easily qualify for a mortgage loan by reducing your expected monthly payment. Though you apply for an MCC the year you purchase the home, you can enjoy the credit for the loan's entire life, as long as the property remains your primary residence.
A few other essential details about MCCs include:
V.A. and USDA Loans
While these grants are not assistance programs per se, both V.A. loans and USDA loans can help you avoid a costly down payment. You pay a 2% guarantee fee with USDA loans, which can be rolled into the loan and spread across your monthly payments. V.A. loans, offered only to military members and veterans, require a funding fee, which may also be rolled into the total loan amount. Remember that USDA loans are only available if you purchase an eligible rural property.
Eligibility and Requirements