First-Time Homebuyer Grants: How They Work and How To Get One

Saving up for a down payment is the hardest part of achieving homeownership for most first-time buyers. It can take more than 40 years to save up a 20% down payment in some cities, and it’s the single biggest hurdle facing homebuyers, according to a survey from mortgage lender Mr. Cooper.

However, there are numerous first-time homebuyer grants out there that can help.

How Do First-Time Homebuyer Grants Work?

Homebuyer grants are designed to offset some of the purchasing costs for first-time buyers. They typically cover part of a down payment, closing costs, or sometimes, even the total purchase price of the home. They don't require repayment, as long as you live in your home for a required period of time.

Many first-time homebuyer grants are the result of federal funding, although the U.S. government doesn't offer them directly. Instead, these funds are passed on to individual states, counties, and municipalities, which then create grant programs for residents within their jurisdictions.

First-Time Homebuyer Grant Options

You have several options if you’re struggling to save up for a down payment, or if you're looking to reduce the costs of buying a home. Grant availability varies by locale, so not all of these might be available in your area. Certain cities and states offer specific grants for local residents, however, such as:

• The Austin Homebuyer Down Payment Assistance Program
• The New York City HomeFirst Down Payment Assistance Program

Good Neighbor Next Door

The Good Neighbor Next Door Sales Program covers 50% of a home’s list price and is designed specifically for public servants. Only law enforcement officers, firefighters, emergency medical technicians, and teachers of grades pre-K through 12 are eligible to apply, and only certain properties qualify for the program. Check for HUD-approved homes in your area if you fall into one of these categories.

There are a few other requirements for this grant:

• You must live in the home for at least three years.
• You must sign a second mortgage for the discount amount provided, although you won’t have to make payments unless you fail to meet the three-year occupancy requirement.
• Owners are determined by a random lottery if more than one person submits an offer on the same property.

HomePath Ready Buyer

HomePath is a grant program offered by Fannie Mae. It provides closing-cost assistance of up to 3% of the loan amount. You must take the online HomePath Ready Buyer Course to participate in this program. The course costs $75 and runs from four to six hours. The fee is reimbursable when you purchase an eligible Home Ready property.

There are a few other requirements for this grant:

• You can only purchase homes listed on HomePath.com.
• A real estate agent must submit your offer, along with your course-completion certificate, to the HomePath Online Offers system.
• You must move into the home within 60 days of purchasing it.

National Homebuyers Fund

The National Homebuyers Fund (NHF) is a grant that covers part or all of your down payment or closing costs, up to 5% of the total loan amount. It’s available in all 50 states and doesn't have to be repaid, although it’s sometimes provided as a 0% interest rate second mortgage. It can be used for either purchasing or refinancing a primary residence.

There are some important details of the NHF grant:

• You must use a participating lender to qualify.
• You must be able to use it with any loan type—Federal Housing Administration (FHA), Department of Veterans Affairs (VA), U.S. Department of Agriculture (USDA), or conventional.
• You must live in the home for at least three years.

Mortgage Credit Certificates (MCCs)

MCCs are federal tax credits that help first-time homebuyers offset the costs of taking out a mortgage. They allow the buyer to reduce their total tax liability by up to $2,000, depending on their loan amount.

MCCs can help you qualify for a mortgage loan more easily by reducing your expected monthly payment, according to the Federal Deposit Insurance Corporation (FDIC). You can enjoy the credit for the entire life of the loan, as long as the property remains your primary residence, even though you would apply for an MCC in the year you purchase the home.

There are some important details about MCCs that you should be aware of:  

• Income and sales price limits apply. They can vary, depending on the state in which you buy.
• You could potentially be required to take a homebuyer education course before claiming your credit.
• If you aren't purchasing for the first time, you can still be eligible as long as you're buying a house in a HUD-approved area.

You use the credit at the time you file your federal tax returns, or have your employer reduce your tax withholdings on a monthly basis, as appropriate.

VA and USDA Loans

VA and USDA loans are mortgage loan programs, not assistance programs, but both can help you avoid needing a costly down payment. You’ll pay a 2% guarantee fee with a USDA loan, but it can be rolled into your loan and spread across your monthly mortgage payments.

VA loans are offered only to military members and veterans. They require a funding fee, which can be rolled into your total loan amount as well. USDA loans are only available if you’re purchasing an eligible rural property.

Eligibility and Requirements

You must qualify for a mortgage loan first to be eligible for any of these first-time homebuyer grants. Use our mortgage payment calculator to get a sense of how much home you can afford. Then, get prequalified with a mortgage lender to ensure you can meet this requirement before applying for homebuyer grants and assistance.

Federally funded grants will also require you complete a HUD-approved housing counseling class. See HUD.gov to find housing counselors in your area.

The Bottom Line

There are numerous options available if you need help lowering the costs of your first home purchase. In fact, homebuyers who use these assistance programs save more than $17,000 over the life of their loan, according to data from RealtyTrac. Check with your state housing agency, or talk to a housing counselor in your area to see whether you’re eligible for these savings.

Frequently Asked Questions (FAQs)