First-Time Homebuyer Grants: How They Work and How to Get One

They may make your purchase more affordable

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For most first-time homebuyers, saving up for a down payment is the hardest part. In fact, in some cities, it can take upwards of 40 years to save up a 20% down payment, and, according to a survey from mortgage lender Mr. Cooper, it’s the single biggest hurdle facing homebuyers today.

Fortunately, there are grants out there that can help.

How Do First-Time Homebuyer Grants Work?

First-time homebuyer grants are designed to offset some of the purchasing costs for new buyers. They typically cover part of your down payment, closing costs, or sometimes the total purchase price of the home. They do not require repayment, as long as you live in your home for the required amount of time.

Many first-time homebuyer grants are the result of federal funding, though the U.S. government itself does not offer any loans directly. Instead, these funds are passed on to individual states and municipalities, which then create grant programs for residents within their boundaries.

First-Time Homebuyer Grant Options

If you’re struggling to save up for a down payment or are looking to lessen the costs of buying a home, a first-time homebuyer grant may be able to help. 

Below are some of the options you might consider. Keep in mind that grant availability varies by locale, so not all of these may be available in your area. However, certain cities and states offer specific grants for local residents, such as the Austin, Texas Homebuyer Down Payment Assistance Program, the New Jersey Housing and Mortgage Finance Agency First-Time Homebuyer Mortgage Program, or the New York City HomeFirst Down Payment Assistance Program, to name just a few. 

Good Neighbor Next Door

The Good Neighbor Next Door Sales Program covers 50% of a home’s list price and is designed specifically for public servants. Only law enforcement officers, firefighters, emergency medical technicians, and teachers of grades pre-K through 12 are eligible to apply, and only certain properties qualify for the program. If you fall into one of these categories and are interested in leveraging the grant, you’ll need to check for HUD-approved homes in your area.

Available Good Neighbor Next Door properties change often, so check back regularly if you don’t see something that fits your needs.

A few other requirements of this grant include:

  • Living in the home for at least three years
  • Signing a second mortgage for the discount amount provided, though you won’t need to make payments on it unless you fail to meet the occupancy requirement above
  • Determining an owner by a random lottery if more than one person submits an offer on the same property 

HomePath Ready Buyer

A grant program offered by Fannie Mae, HomePath provides closing-cost assistance up to 3% of the loan amount. To participate, you have to take the online HomePath Ready Buyer Course, which costs $75 and runs four to six hours. The fee is reimbursable once you purchase an eligible Home Ready house.

A few other requirements of this program include:

  • Only purchasing homes listed on HomePath.com 
  • Completing the course before submitting an offer on a home
  • Having your real estate agent submit your offer, along with your course completion certificate, into the HomePath Online Offers system
  • Needing to move into the home within 60 days of purchasing it

National Homebuyers Fund

The National Homebuyers Fund (NHF) is a grant that covers part or all of your down payment or closing costs, up to 5% of the total loan amount. It’s available in all 50 states and does not need to be repaid. It’s sometimes provided as a 0%-interest rate second mortgage, and can be used for both the purchasing and refinancing of a primary residence.

A few other important details of the NHF grant include:

  • Needing to use a participating lender in order to use the grant
  • Being able to use it with any loan type—Federal Housing Administration (FHA), Veterans Administration (VA), U.S. Department of Agriculture (USDA), or conventional
  • The requirement to live in the home for at least three years

Mortgage Credit Certificates (MCCs)

MCCs are federal tax credits that help first-time homebuyers offset the costs of taking out a mortgage. They allow you to reduce your total tax liability by up to $2,000, depending on your loan amount. 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 in the year you purchase the home, you can enjoy the credit for the entire life of the loan, as long as the property remains your primary residence.

A few other important details about MCCs include: 

  • Income and sale-price limits, which vary depending on the state in which you’re buying
  • Potentially being required to take a homebuyer education course before claiming your credit
  • Eligibility for non-first-time homebuyers, as long as they are buying a house in a HUD-approved area

You can choose to use the credit at the time you file your federal tax returns or have your employer reduce your tax withholdings on a monthly basis, as appropriate.

VA and USDA Loans

While these grants aren’t assistance programs per se, both VA loans and USDA loans can help you avoid a costly down payment. With USDA loans, you’ll pay a 2% guarantee fee, but this can be rolled into your loan and spread across your monthly payments. VA loans, which are offered only to military members and veterans, require a funding fee, but this can be rolled into your total loan amount as well. Keep in mind that USDA loans are only available if you’re purchasing an eligible rural property.

Because grants are offered at the state and city level, you’ll want to check with your state or local housing agency for programs specific to your area. Check out HUD.gov’s state grant directory for more options.

Eligibility and Requirements

In order to be eligible for any of the above first-time homebuyer grants, you’ll need to be able to qualify for a mortgage loan first. You may want to get prequalified with a mortgage lender to ensure you can meet this requirement before moving forward with any grant application.

Federally funded grants will also require you to complete a HUD-approved housing counseling class. See HUD.gov to find housing counselors in your area.

The Bottom Line

If you need help lowering the costs of your first-home purchase, the options are out there. In fact, according to data from RealtyTrac, homebuyers who use these assistance programs save more than $17,000 over the life of their loan. Check your state housing agency or talk to a housing counselor in your area to see if you’re eligible for these savings.

Article Sources

  1. Mr. Cooper. "Home Buyers Survey: The Home Stretch," Accessed Nov. 17, 2019.

  2. Unison.com. "Is the Homeownership Dream Still Alive?," Accessed Nov. 17, 2019.

  3. Freddie Mac. "Understanding Down Payment Assistance," Accessed Nov. 17, 2019.

  4. HUD.gov. "Resources for Individuals," Accessed Nov. 17, 2019.

  5. HUD.gov. "HUD Good Neighbor Next Door Program," Accessed Nov. 17, 2019.

  6. Fannie Mae. "HomePath Ready Buyer," Accessed Nov. 19, 2019.

  7. National Homebuyers Fund. "NHF Down Payment Assistance," Accessed Nov. 18, 2019.

  8. FDIC. "Mortgage Tax Credit Certificate (MCC)," Accessed Nov. 18, 2019.

  9. USDA. "Chapter 16: Closing the Loan and Requesting the Guarantee," Accessed Nov. 18, 2019.

  10. HUD.gov. "Resources for Individuals," Accessed Nov. 18, 2019.

  11. RealtyTrac. "Down Payment Assistance Programs Save Qualifying Homebuyers More Than $17,000 on Average Over Life of Loan," Accessed Nov. 18, 2019.