How Do First-Time Homebuyer Grants Work?

First-time homebuyer grants are financial assistance programs designed to help new buyers afford the upfront costs of purchasing a home. These grants may be offered at the federal, state or local level. Or, they can be provided directly by mortgage lenders.

How they differ from loans

When you get a mortgage loan — even a low-cost, subsidized loan — you’ll eventually have to pay back the money you borrow. You might end up paying back much more than you originally borrowed because of high interest rates.

A grant, in contrast, does not have to be paid back. You can use the money for closing costs or to cover part or all of your down payment.

Keep in mind, first-time homebuyer grants can sometimes have restrictions.

Who typically offers these grants

A closing cost assistance or down payment grant may be offered by the following organizations:

• Local and state housing agencies
• Nonprofits or community development organizations
• Federal programs (like those from the Department of Housing and Urban Development)

Occasionally, real estate developers, employers and mortgage lenders also offer homebuying assistance programs.

While each assistance program is different, they tend to have similar requirements.

Eligibility requirements and household income limits

Most programs have eligibility criteria tied to these factors:

• Household income limits
• Home purchase price limits
• First-time buyer status
• Using the home as a primary residence
• Complete a homebuyer education course

Some programs require participants to use a specific finance agency or take out a specific type of mortgage, like FHA or conventional loans.

How the funds can be used

Depending on the program, funds may be used for:

• Covering your down payment
• Paying closing costs
• Funding your escrow for taxes and insurance

Some programs allow you to combine grant funding with other payment assistance programs, making your purchase even more affordable.

Here’s where to look if you want to explore grant programs in your area

Local and state programs

Most grant programs are administered by state or local housing finance agencies. These typically offer the most generous support.

Payment and closing cost assistance

Some grant programs focus exclusively on down payment or closing cost assistance. These programs reduce your out-of-pocket costs when buying a home.

Here’s what first-time homebuyers should expect when applying for a grant.

What programs typically require

Grant programs typically require you to submit:

• Proof of income
• Home info
• Details about your loan

Each program differs, so work with an experienced lender familiar with homebuyer grants in your area.

Importance of a homebuyer education course

Your program may require you to complete a homebuyer education course online or in person. These short classes cover budgeting, home maintenance and the basics of mortgage financing.

Here’s how to apply:

• Find programs in your area
• Review eligibility
• Gather your documents
• Apply through the agency or an approved lender
• Coordinate with your lender

That’s it. If you’re eligible, you can receive grant funding.

A grant could set you on the right course, but there are other ways to become a homeowner.

Weighing grants vs. other assistance options

First-time homebuyer grants are not the only form of assistance. Explore these alternatives:

• Down payment assistance loans
• FHA loans with low down payment and credit score requirements
• Employer- or community-based assistance programs

If you’re unsure where to go next, meet with a loan officer who understands local lending conditions.

Talk to a loan officer about what’s available in your area

Before you start shopping, find an experienced loan officer to guide you. Most homebuyer assistance programs are highly local, so working with a mortgage pro is key.