How to Buy a Home With a First-Time Homebuyer Grant

If you are like most adults, then you long to buy your first home. Purchasing a home for the first time is an exciting prospect. Any home, such as a house, apartment or condominium, can feel like a dream home when you have never had a place to call your own.

You may assume home ownership is nothing more than a dream because of high downpayment requirements, your poor credit or the increasing costs of home listings. It is true there are many scenarios where it is difficult or impossible for you to qualify for a traditional home loan.

However, there are ways to still purchase the home you want, especially when you have never bought a home before. One such method is by taking advantage of grants for first-time homebuyers. These grants are offered by the government to assist you with first-time home purchases. 

About First-Time Homebuyer Grants

Conventional home loan lenders have strict requirements you must meet before you can qualify for a mortgage. For example, you must have a credit score higher than the minimum requirement. First-time homebuyer grants awarded by the federal government also have rules, but they are often far less strict.

For instance, you may qualify for a Department of Housing and Urban Development (HUD) grant, even if your credit score is poor. However, factors like the amount you can spend on a down payment also change your eligibility.

Available Grants for First-Time Homebuyers

How does the government help first-time homebuyers?

A mortgage issued by HUD or any division of it, such as the Federal Housing Administration (FHA), is government-insured. Grants are available to first-time buyers as incentives to purchase homes and make housing more affordable.

Obtaining a government-insured mortgage offers you more security as a first-time home purchaser. When you qualify for a grant-based federal mortgage, you can also afford a home normally outside out of your financial reach. 

To obtain such a grant, you must meet federal guidelines and follow certain rules. For example, mandatory financial counseling is necessary to make sure you are financially equipped to purchase a home and take on a mortgage.

Learn About First-Time Homeowner Vouchers

You may not be able to get the type of grant listed above, but other local grants and assistance programs are available. These additional programs have different requirements and can provide varying amounts of financial assistance.

Examples of other financial assistance include:

  • Federal grants.
  • State grants.
  • Local grants.
  • Federal tax credits.

Qualifying for a federal tax credit does not help you afford the initial cost of a home. However, receiving a tax credit saves you money when you file your taxes for the first time after making the purchase.

It is like receiving a partial refund on your home purchase because you get tax credits to offset part of the purchase. The Internal Revenue Service (IRS) offers a tax credit specifically for a first-time home purchase.

You can also take advantage of first-time homeowner vouchers if you qualify. The HUD Homeownership Voucher Program issues these vouchers. Each voucher is redeemed for a certain amount.  

You can use voucher credits to pay part of the cost of the home or cover expenses relating to your home purchase. These expenses may include utility costs. Visit your local public housing agency (PHA) to see if you qualify.

A PHA representative must make sure you meet basic requirements, such as:

  • Never having purchased a home before.
  • Meeting the minimum allowable income requirement.
  • Completing HUD homeownership counseling.
  • Having at least one household member employed on a full-time basis for no less than one year.

However, there may be waivers for some of the above conditions. For instance, if you have purchased a home before but your spouse has not, then you both may apply as first-time homebuyers together.

Learn About Loans With the Federal Housing Administration (FHA)

Another option to help you purchase your first home is applying for the FHA Loans Program. Buying your first home is an involved process, even if you do all the necessary home buying research beforehand.

The FHA Loans Program simplifies the process as much as possible. Loans offered through the FHA do not have strict requirements compared to traditional mortgages available through local lenders. For example, you may pay as little as 3.5 percent of the total home price as a down payment with an FHA loan.

To get an FHA loan, you must apply for a mortgage through an FHA-approved lender. The FHA itself insures such a loan, but it does not provide loan funds directly. Applying for an FHA loan through an FHA approved lender is often easier than applying for a conventional loan. An FHA loan tends to have lower closing costs. Credit score requirements are also less strict.

About the Good Neighbor Next Door the Program

The Good Neighbor Next Door Program is operated by HUD. It is a program designed to encourage upstanding citizens to move into homes for at least three years.

The program rewards you with a home at a reduced rate if you are in a desired profession and willing to stay in the home for the three-year term. Accepted professions are:

  • Emergency medical technician (EMT).
  • Firefighter.
  • Law enforcement officer.
  • Teacher.

The Good Neighbor Next Door Sales Program provides a regularly updated list of qualifying homes for sale. The program only allows seven-day property listings, so you must act fast when you see a home you like.

You must apply for the program through the PHA or HUD office in your state. If you apply to purchase a home with existing applications, then the winner is determined via a lottery drawing.

Learn About Loans and Mortgage Assistance for Veterans

There are several mortgage assistance programs available if you are a U.S. veteran. The Department of Veteran Affairs (VA) offers first-time homebuyer assistance in the form of VA mortgages.

If you are a veteran who purchased your first home with a loan not backed by the VA, then you can still take advantage of VA loans by refinancing. Refinancing assistance through the VA has lower interest rates than other private loans for civilians even if you have poor credit.

Additionally, you may qualify for the Special Housing Adaptation (SHA) grant or the Specific Adapted Housing (SAH) grant if you were injured and disabled during your military service.

You may qualify for an SHA grant if you need to purchase a special home due to your physical needs or make adaptations to your current home. An SAH grant can help you if you need funds to help you maintain your independence in your home.

Learn About Additional Assistance for First-Time Homebuyers

You may qualify for financial assistance from other programs when buying your first home. Eligibility for these programs may not specifically demand that you are a first-time buyer but, instead, have other requirements.

For instance, the U.S. Department of Agriculture (USDA) has special programs if you wish to live in a rural area. This loan has lower interest rates and may not require a down payment if you meet certain qualifications. The intended home must be located in a USDA-defined rural area.

Similarly, some local state or city programs offer grants if you live in the house for a certain period. For instance, you may qualify for a $10,000 grant for living in a rural place, but the grant is staggered over a 10-year period. Again, the location of these homes must be in the specified area.

Another grant you might consider is the National Homebuyer Fund (NHF), which can cover up to 5 percent of the downpayment. While it is not specific for first-time buyers, the grant is especially beneficial for those who cannot afford to save 20 percent while renting.