First-Time Homebuyer Grant

For many adults, buying a home is a major goal. However, it is not easily accomplished and often remains a dream for those who cannot afford it.

A home purchase requires financial stability, as it is a costly investment with upfront and long-term costs. There are the upfront costs, such as the down payment, mortgage payments, and property taxes to consider.

Buying a home also require a good credit score. Mortgage lenders perform extensive reviews of homebuyers’ income and credit history to determine if they are reliable borrowers. Buyers with low credit scores are often rejected when they apply for mortgage loans or receive extremely high interest rates.

If you cannot afford to buy a home right now, you may qualify for a grant sponsored by the Department of Housing and Urban Development (HUD). It caters to first-time homeowners who would otherwise have to wait a few years to get a home. Find out more about homebuyer grants by reviewing the sections below.

What are homebuyer grants?

The HUD has several federal programs that help first-time homebuyers purchase a home, provided they meet eligibility requirements. To qualify for their programs, applicants must have a credit score that falls within a certain range and be able to put a down payment.

Typically, the requirements for HUD grants are less strict than the requirements to qualify for traditional loans. Mortgage lenders take on a big financial risk by letting homebuyers finance a home, as there is no guarantee they will pay it back. As such, they are strict guidelines to follow to determine who qualifies for a loan.

What role does the government play in this?

The FHA, a department within the HUD, insures the cost of the mortgage for eligible homebuyers. This makes it easier for first-time buyers to afford the home. However, applicants must meet certain conditions.

The HUD requires potential homebuyers to attend counseling classes that will help them with their finances and guide them through the home-buying process. This aims to prepare homebuyers to make this big investment.

Homeowner Vouchers

Those who do not qualify for grants can apply for a tax credit that was established by the Internal Revenue Service (IRS). It allows first-time homebuyers to get a tax break. There are also government assistance programs that are federally funded by operated at the state or local level.

For instance, HUD’s Homeownership Voucher Program provides financial assistance to low-income families who live in public housing. The grant allows qualified families to afford the purchase of a home through subsidies.

The program also helps homeowners cover the cost of monthly mortgage payments and household expenses. This can include water, electric and gas bills.

However, this voucher program has strict eligibility requirements that are defined by HUD and the local agency, such as:

  • The applicant must be buying a home for the first time.
  • The applicant must meet income limits set by the local PHA.
  • The applicant must have at least one member of the family who has a full-time employment and has had a job for over one year.
  • The applicant must complete the HUD-approved homeownership counseling program.

Petitioners must contact the HUD or their local PHA to apply for the program.

Federal Housing Administration (FHA) Loans

First-time homebuyers with low credit scores can afford to purchase a home through the HUD program. The FHA provides the funding to help struggling homebuyers get the home of their dreams. The FHA serves as a mortgage lender but has much less stringent requirements to qualify for a loan. They also require less money upfront for the down payment, as low as 3.5 percent of the home sale price.

Individuals with credit scores below 650 can still qualify for a mortgage through the FHA. Furthermore, the program may also cover a portion of the closing costs. This can include property appraisal fees, attorney fees and application fees.

It is important to understand that the FHA does not provide funding to direct individuals. Instead, there are numerous FHA-approved lenders who follow the guidelines set by the administration to evaluate applicants.

Homebuyers with an FHA loan will likely have to pay for mortgage insurance. This protects the lender in the event that you default on your payments.

Good Neighbor Next Door Program (GNND)

The GNND initiative helps public servants purchase homes by providing substantial discounts. The program aims to promote home ownership and help build communities.

It is not open to the general public, only law enforcement officers, firefighters, teachers and emergency medical technicians (EMT) qualify for the program. One of the conditions of the program is that applicants must live on the property for at least three years.

The program provides a list of single-family homes that are up for sale in revitalization areas. The properties are listed on the program for seven days and eligible applicants can submit their interest for the home they want in their states.

If several applicants are interested in the same property, a caseworker will choose the winner by lottery. One of the biggest benefits of the program is that the properties are sold at a 50 percent discount. However, the GNND program stipulates that applicants must sign a second mortgage and promissory note.

There is no interest associated with the second mortgage nor are there required payments, as long as the homeowner fulfills the three-year occupancy requirement.

Mortgage Assistance for Veterans

The Department of Veteran Affairs (VA) offers mortgage assistance and low interest rates to U.S. veterans who do not qualify for a traditional loan. There are also specific adapted housing (SAH) grants and special housing adaptation (SHA) grants that help veterans with disabilities.

With an SAH grant, veterans with disabilities that are directly related to their service can purchase a home that meets their needs. They can also adapt a home that helps them live independently. To qualify for the program, applicants must have a permanent and total disability caused by active duty. It can be difficult to find an open spot, due to the popularity of the program.