First-time homebuyer grants

Key takeaways

• A first-time homebuyer grant provides funds to lower-income first-time buyers to help cover a down payment and closing costs. The funds don't have to be paid back.

• A grant might come from a bank or mortgage lender, a non-profit or other organization.

• A grant typically won't cover all of your home-buying expenses — you'll still need to contribute some of your own money to the purchase.

Coming up with a down payment on a home can feel impossible — especially if it’s your very first home. A first-time homebuyer grant can help you bridge the savings gap.

What is a first-time homebuyer grant?

You’ll find many options for financial help as a first-time homebuyer, but there’s one key piece that separates grants from other forms of help: You don’t ever have to pay the money back. The funds can help you cover a down payment on a home as well as the closing costs you’ll need to hand over before you move in. Some grant programs are available to those who have purchased a home before, too.

What’s the rationale behind these grants? The thinking is that homeownership benefits not just individuals, but also communities and society at large by building stability and generational wealth. It might also increase local spending, which benefits small businesses in the area. Plus, homeowners pay property taxes, which contribute to state and municipal budgets.

Because they’re essentially free money, first-time homebuyer grants differ from other down payment assistance programs, which can help you afford a home in the present but come with some strings attached for the future.

How to qualify for a first-time homebuyer grant

Not all first-time homebuyers are eligible for first-time homebuyer grants. These programs tend to be geared toward those who can be classified as a low- or moderate-income borrower, and that definition depends on your income and where you want to live.

While eligibility requirements vary, here are a few elements common to most grant programs:

• Income limits: Many grant programs designate households that earn 80 percent or less of the area median income (AMI) as “low-income,” and limit the program to those in that range. The income limits also vary based on how many people are in the household.

• Home price limits: Your spending also might be restricted within a certain range of residence. Again, these limits vary widely based on the local housing market.

• Your contribution: While you’ll get assistance for the bulk of the purchase, many grants stipulate that the homebuyer needs to chip in some cash. One common ask is either 1 percent of the purchase price or $1,000 (whichever is greater).

• Your residence status: You typically can only get a grant to help buy a home you’ll actually make your primary residence, not one you’ll rent out to someone else or use as a second home.

• Additional education: Many grant programs require you to complete a homebuyer education course prior to receiving the funds.

First-time homebuyer grants

HomePath Ready Buyer program

The HomePath Ready Buyer program is offered by Fannie Mae, one of two government-sponsored enterprises that back mortgages and buy them from lenders. With this program, you can get up to 3 percent of your home’s purchase price to help with closing costs. However, you’re limited in what you can buy — it has to be a HomePath property, a foreclosed home owned by Fannie Mae. You’ll also need to complete a homebuyer education course.National Homebuyers Fund

The nonprofit National Homebuyers Fund sponsors down payment and closing cost grants that can total up to 5 percent of your home’s purchase price. You actually don’t have to be a first-time homebuyer to qualify, but you do need to find a mortgage lender that participates in the program and forgives the funding. You can call the organization for assistance finding lenders in your area at 866-643-4968.

Bank of America grant programs

Bank of America offers two grant options to help with a down payment and closing costs: the America’s Home Grant and Down Payment Grant programs. America’s Home Grant provides up to $7,500 in lender credits for closing costs, while the Down Payment Grant provides up to $10,000 in down payment help. You’ll have to get your mortgage from Bank of America, however, and for the Down Payment Grant, there could be tax implications.

Chase Homebuyer Grant

The Chase Homebuyer Grant is available for primary residence purchases in select areas of the country that meet specific census tract requirements. The program provides grants of $2,500 or $5,000 that can primarily be used to help buy down the applicant’s interest rate, but the money can also be used for fees associated with the mortgage or down payment costs. The Homebuyer Grant is available to applicants who are seeking the bank’s DreaMaker loan, or a conventional, FHA or VA mortgage.

Good Neighbor Next Door program

While the Good Neighbor gNext Door program technically falls under the “forgivable loan” category, the potential free money is so notable we’ve included it here. Available to law enforcement officers, teachers, firefighters and emergency medical technicians, this program from the U.S. Department of Housing and Urban Development offers a 50 percent discount on homes in designated revitalization areas. As long as you live there for three years, you get the property for half off the list price with no need to pay that discount back. As with the HomePath program, you won’t have the freedom to buy just any home, however.

State and local first-time homebuyer grants

In addition to nationally available grant programs, you might be able to find financial assistance from an organization closer to home (or where you want your home to be). Many states offer grant programs for budding homebuyers, especially if you’re relocating for work. Check with your state’s housing finance authority or real estate agent.

A local mortgage lender might also be able to point you toward free money. For example, First Federal Bank of Kansas City offers eligible buyers a grant of up to $5,000. Illinois-based New York-based ESL Federal Credit Union has a matching program for Black and Latinx first-time homebuyers that can provide up to $10,500 of grant money. Tri Counties Bank, in California, offers four-to-one matching grants of as much as $29,000.

How to apply for a first-time homebuyer grant

Most home-buying grants come with minimum credit score requirements. The application process also typically requires extensive documentation of income and assets, including at least two months of recent pay stubs and verification of employment.

Depending on which grant you’re after, you might be able to apply for the grant as you apply for your mortgage simultaneously. Otherwise, you’ll need to follow the organization’s guidelines. Many allow you to begin the application process online.

Other assistance for first-time homebuyers

If you can’t find grants in your area that work for you, you aren’t out of luck just yet. There are other low-cost first-time homebuyer loans and programs. You might also qualify for a forgivable loan, which could end up functioning much like a grant (if you meet certain requirements, you never have to repay the loan).

Here are a few options to explore:

• DPA second mortgages – A DPA second mortgage (the DPA stands for “down payment assistance”) is available through many state housing finance agencies. In a DPA second mortgage program, you’ll apply for a 30-year mortgage to finance the home, and then another mortgage for a smaller amount to help with the down payment or closing costs. Just like the first mortgage, this second loan comes with an interest rate (although it might be lower than the first), and you’ll pay it back over a period of time.

• DPA deferred-payment loans – Instead of requiring you to immediately start paying back the down payment assistance funds, some programs allow you to defer these payments until you sell your home, refinance or pay off your mortgage. The assistance won’t accrue interest in the meantime, so the amount you owe won’t grow.

• DPA forgivable loans – Forgivable loans are the closest cousin to grants because they can wind up being free — but only if you live in the home long enough. For example, you might be able to borrow $5,000 to help with a down payment, with the loan balance reduced every month over 10 years. If you move beforeIf you stay in the home for 10 years, it’ll be completely forgiven. that time frame’s up, you’ll need to pay back a portion of the loan.

• Individual Development Accounts (IDAs) – IDAs are matched savings accounts designed for those within certain work and income parameters, typically those with a low income. IDAs are offered through some public housing organizations and private nonprofits and usually provide a dollar-for-dollar match, up to a specific amount, for savings goals, including a down payment and closing costs.

Next steps for first-time homebuyers

A first-time homebuyer grant can help alleviate some of the challenge of saving for down payment and closing costs. Begin by researching the first-time buyer grant programs you might be eligible for, and gather the documents needed to apply. Even if you can’t find a grant program in your area, don’t despair: There are also many first-time homebuyer loan programs that can make homeownership far more attainable than you think.