First-time Home Buyer Grants & Programs: All You Need to Know

While exciting, deciding to buy your first home can feel overwhelming. Aside from the paperwork and what feels like a very lengthy process (it can be), finding the money to afford expenses like the down payment and closing costs may feel out of reach.

Luckily, there are first-time homebuyer programs and grants available to help you get into your first home sooner.

What is a first-time home buyer program?

First-time home buyer programs are incentives that help to make the path to homeownership more affordable. There are various programs that are offered by many organizations including non profits, public and private banks and the government.

Depending what you may qualify for, you may have access to the following first-time homebuyer programs:

• Local and federal tax credits.
• Low down payment mortgages.
• No down payment mortgages.
• More lenient approval criteria for certain types of home loans.
• Loans for mortgages or costs related to home buying at more competitive interest rates.

What is a first-time home buyer grant?

A first-time homebuyer grant is a type of home buyer program, except you don’t need to repay the money you’re given. The money you receive can go towards closing or your down payment.

Keep in mind that the grants may have stringent qualifying requirements, such as income restrictions and the requirement to take qualifying courses.

What are the types of first-time home buyer programs?

There are many first-time home buyer programs, and the following are some of the more common federal programs. If you want to see what is available in your state, check the Housing and Urban Development (HUD)’s website on state-specific resources.

Good Neighbor Next Door

This program is available to qualifying educators, law enforcement officers, emergency medical technicians, and firefighters. Home buyers can receive up to half off the home's list price. Other criteria include purchasing a home in a qualifying area and committing to live in the home as their primary residence for at least 36 months.

HomeReady

Fannie Mae's HomeReady Mortgage offers loans with down payments as low as 3%. Plus, there are less stringent requirements, such as what types of income counts in your application and closing or down payment being allowed to come from various sources.

Applicants will need to meet credit and count as low-income.

Home Possible

Freddie Mac's also offers mortgages with a down payment as low as 3% for those who qualify as very low- or low-income home buyers. Down payment sources can come from different places, including loans and employer-assistance programs.

Conventional 97

This program is for those whose income is considered too high to qualify for the HomeReady Mortgage. You can still get a loan with 3% down as a first-time homebuyer, but you'll most likely need to meet more stringent credit requirements.

Native American Direct Loan (NADL)

Eligible Native Americans who are veterans may qualify to purchase a home on Federal Trust land at a reduced mortgage interest rate. Since eligibility requirements can be cumbersome, it's best to contact your local housing authority to talk about your financial situation and whether you qualify.

Government-backed mortgages

Several government backed mortgages are available for first-time home buyers and may come with reduced interest rates, lower down payment requirements, and more lenient qualification criteria.

Some of these loans include:

• FHA loans: Borrowers may be able to get this loan backed by the Federal Housing Administration for as little as 3.5% down and a credit score of at least 580. You will have to pay mortgage insurance.
• VA loans: Backed by Veterans Affairs, qualifying U.S. military members and their families are eligible for lower interest rates and with no down payment requirements.
• USDA loans: These loans are available to very low-, low-, and moderate-income homebuyers the opportunity to purchase homes in qualifying rural areas.

What are the types of first-time home buyer grants?

Different types of home buyer grants include ones that help you with closing costs, or money towards your down payment. If you qualify, the money you receive doesn’t need to be paid back.

Each state may have various home buyer grant programs. Organizations such as

state Housing Finance Agencies (HFAs) are set up to help meet residents' needs and assist with lowering the barriers to homeownership. Some grants include housing bond programs and other assistance to help with closing costs.

Your state or local government may offer down payment assistance programs (DPAs) that offer cash that are typically first come, first served. You’ll want to make sure it’s a grant, and not a DPA loan. With either of these types of grants, you'll most likely need to meet minimum credit score and income threshold requirements.

How to qualify for a first-time homebuyer grant

Most first-time home buyer grants will list their qualifying criteria on their website. You can also contact organizations offering grants or your local Department of Housing and Urban Development (HUD) for updated requirements. In general, you may be required to meet credit score and location requirements when submitting an application.

Frequently asked questions (FAQs)

What is Biden's $25,000 Down Payment Toward Equity Act?

The Down Payment Toward Equity Act is a piece of legislation that, if passed, would allow first-time homebuyers to qualify for a $25,000 grant towards the purchase of a home. It could also include expenses involved in a home purchase to help qualifying home buyers afford the costs.

How can I avoid a down payment?

You may not have to make a down payment if you qualify for certain types of home loans, or if you’re able to qualify for grants and programs that will offer you a down payment. For example, VA loans don’t require a down payment, and some federal and state programs may give you a grant that goes towards your down payment.

Is $25,000 enough for a down payment?

$25,000 may be enough for a down payment depending on factors such as the type of home loan and your home’s purchase price. For instance, if your home costs $125,000, that is a 20% down payment, generally enough for most conventional home loans.