“Home wasn’t built in a day.”
It all starts with a dream: what a joy it’ll be to have our own house. Buying our first home is a statement of our autonomy, taste, and lifestyle; simply put, it’s a subtle way of saying: this is how we do it! Yet the road to turning this dream into reality often goes beyond one person’s abilities, even two. That is why programs and grants act as first-time homebuyer incentives. They accompany you on the road to your dream house.
When it comes to buying a house, there are various financial aspects in the purchase process. We’ve got the down payment, mortgage, and closing costs. There are many programs and grants for first-time homebuyers, each covering one or more aspects.
To have a clear picture of the options you have at hand, first, we’ll review the fees and expenses that can be compensated through these grants. After that, we’ll examine the available programs one by one.
Table of Contents
Financial Aspects of Buying a House that You Can Outsource
Unless you are a cash buyer, deciding to buy your first house begins with getting pre-approved for a loan. From there, the process starts, and so do its miscellaneous expenses. You can cover the following by taking advantage of incentive programs.
Down payment
That is the first step in securing a loan. It is the part of the house price that you pay. The amount of the down payment ranges between 3% to 20% depending on the property’s value, the mortgage program you have chosen, and the type of property. Some grants offer to cover all or part of the down payment fee. There are also mortgage programs that require low to zero down payment.
Mortgage
That is the foundation upon that your dream house rests. A mortgage is a secured loan to cover the remaining property price minus the down payment. It is secured because the property backs it as collateral.
You can get your mortgage from different institutions like a bank or a mortgage company. You agree on a mortgage rate that can be a fixed rate or floating. The mortgage is settled based on your income, assets, and credit scores. There are multiple programs that can assist you; Some are exclusive, meaning they’re allocated to specific target groups based on their occupation or background or other qualifiers like the type of property. Some programs are available only to first-time homebuyers.
Closing Costs Assistance
These costs apply close to the end and when the ownership is transferred from the seller to the buyer. Closing costs entail multiple fees like loan origination, inspections and appraisals, insurance, attorney, Mortgage points, and tax. Their amount differs depending on the location and value of the property.
Some programs are exclusively dedicated to closing costs assistance, but there are mortgage programs that include this as well.
Programs and Grants for First-Time Homebuyers
As mentioned above, each program or grant has its premise. In an overview, these are the typical programs and grants available for first-time homebuyers:
- Mortgages with a low down payment (Offered/backed by national organizations)
- Differed mortgages: These types of loans require no repayment as long as you live in your house. (Mostly offered by municipal governments and local foundations)
- Forgivable mortgages: They entail loans that can be forgiven in specific circumstances. (Mostly offered by municipal governments and local foundations)
- Down payment assistance DPAs (Offered by national, state, and local organizations)
- Closing cost assistance (Offered by national, state, and local organizations)
- Discount on the praised value (Offered/backed by national organizations)
- Tax credit: A provision offering a tax credit
The following are well-known programs and grants:
| Name of program/grant | Offering Entity | Requirements | Available for | Financial domain |
| HomeReady | Fannie Mae | At least 620credit scores Qualifying income is limited to 80% of AMI | First-time or repeat homebuyers | Mortgages with a lower down payment allows non-occupying borrowers on one-unit properties |
| Home Possible | Freddie Mac | Qualifying income is limited to 80% of AMI | Owner-occupied primary residences Condos, planned unit developments (PUD), and manufactured homes | Mortgages with Low down payment, starting from 3% |
| 97% loan to value (LTV) | Fannie Mae | Fixed-rate mortgages with a maximum term of 30 years | First-time homebuyers | Up to 97% financing mortgage No income limits |
| FHA Loans | Federal Housing Administration | Minimum 580 credit scores for a 3.5% down payment Minimum 500 credit scores for a 10% down payment Mortgage insurance for under 20% down payment | Residential Properties | Mortgages with a low down payment |
| USDA Loans | US Department of Agriculture | No down payment Mortgage insurance is required for little or no down payment | Suburban and rural areas properties | Up to 100% financing Mortgage |
| VA Loans | US Department of Veterans Affairs | No down payment No mortgage insurance | Servicemembers, Veterans, and eligible surviving spouses | Up to 100% financing Mortgage Lower interest rates |
| NADL | US Department of Veterans Affairs | A valid VA home loan Certificate of Eligibility (COE) Buy, build, or improve a home on federal trust land | Veterans who are or have a Native American spouse | No down payment required No PMI Limited closing costs |
| GNND | US Department of Housing and Urban Development | Muse live in their primary residence for 3 years | Law enforcement officers, teachers (pre-Kindergarten through 12th grade), firefighters, and EMTs | 50% discount off the appraised value Covering closing and repair costs for FHA-insured mortgages |
| DPA | National Homebuyers Fund | Flexible options | Primary residence | Up to 5% of the mortgage loan amount Down payment Or Closing costs |
| Down Payment Equity Act * Has not entered into force yet | US Department of Housing and Urban Development | Have a government-backed mortgage | First-time homebuyers First generation homebuyer Income below 120% of AMI | Assistance with the down payment or closing costs or payment to reduce the mortgage rate |
Fannie Mae and Freddie Mac
Congress has established these two mortgage programs. Fannie Mae and Freddie Mac buy mortgages from lenders; they can hold them or sell them as mortgage-backed securities (MBS). They offer various types of mortgage programs with a low down payment, including:
HomeReady: This Fannie Mae-backed program is available for first-time and other homebuyers. It requires credit scores of 620 or higher. The down payment can be as low as 3%.
Home Possible: Backed by Freddie Mac, this program is flexible with the source of a down payment, which can be as low as 3%. Qualifying income is limited to 80% of AMI. An advantage of this program is that a non-occupying can be your co-borrower.
97% loan to value (LTV): This program is exclusive for first-time homebuyers. It has no income limits and offers a low down payment (3%). Your mortgage must be 30 years fixed rate on a one-unit principal residence, including condos and co-ops.
While using each of these programs, you can take advantage of HomePath. It is a market for Fannie Mae’s owned properties. You can check out their listing and get your mortgage on a house in the HomePath market.
The Federal Housing Finance Agency has set targeted changes to Fannie Mae and Freddie Mac’s guarantee fee pricing starting November 2022. The upfront fees are eliminated for first-time homebuyers at or below 100% of AMI in most states and below 120% in high-cost areas.
Federal Housing Administration (FHA) Loans
FHA loans are mortgage programs backed by the Federal Housing Administration, part of the US Department of Housing and Urban Development (HUD). They offer low down payment starting from 3.5% with a minimum credit score of 580.
If you plan to make your house more energy efficient, you can use Energy Efficient Mortgage (EEM) and include the costs. Generally, FHA loans are known for their low down payment, low closing costs, and easy credit qualification.
USDA Loans
The US Department of Agriculture offers this mortgage program. Only suburban and rural areas are eligible for this program. It has desirable conditions, and you can assess yourself to see if it fits your circumstances.
As of January 1, 2023, for low-income and very low-income borrowers, the interest rate for Single Family Housing Direct Home Loan is 4.25%. That number can be reduced to 1% if modified by payment assistance. Typically, with USDA loans, no down payment is required.
Veteran Affairs (VA) Loan
VA loan is a mortgage program provided by private lenders but backed by the US Department of Veterans Affairs. The target group includes Servicemembers, Veterans, and eligible surviving spouses. This program guarantees a portion of the loan so that qualified candidates can get better terms with the lender.
The program assists in getting a competitive interest rate that does not require any down payment or private mortgage insurance (PMI). Its benefits are favorable for first-time homebuyers, but it’s not limited to them. However, to get a VA-backed loan, you must meet the lender’s standards for credit, income, and other requirements. Also, you will have to live in the home you’re buying.
Native American Direct Loan (NADL)
This mortgage program is offered directly by the US Department of Veterans Affairs. Unlike the VA loan, here, the lender is the VA itself. It is open for Veterans who are Native American, or their spouses are so. You can use this program to buy, build or improve a house on federal trust land.
There are some additional requirements to get this loan. For instance, your tribal government must have an MOU with the VA detailing how the program works on its trust land. Also, you should hold a valid VA home loan Certificate of Eligibility (COE).
Good Neighbor Next Door (GNND)
GNND is a discounted home program administrated by the US Department of Housing and Urban Development (HUD). The goal of this program is to raise the quality of communities. This goal is accomplished by providing Law Enforcement Officers, Teachers, Firefighters, and Emergency Medical Technicians (EMTs) the chance to buy their house in the same area where they are performing their job.
Eligible candidates can purchase a residential property at a 50% discount off the appraised value during the first 7 days a qualifying house is listed. If buyers use an FHA-backed mortgage, they could finance all the closing costs and expenses required for repairs, improvements, appliances, and acquisition.
The participants must live in their purchased home for three years, but after that, they can sell, rent, or stay there if they prefer.
NHF Down Payment Assistance (DPA)
National Homebuyers Fund is a non-profit organization that offers assistance for buyers covering down payment and/or closing costs. The amount can go up to 5% of the mortgage loan. Depending on the terms, the assistance can be forgiven immediately, after some years, or require repayment.
Although it is a good option for first-time home buyers, it’s not limited to them. This program is flexible regarding FICO scores and debt-to-income ratios.
Other beneficial Grants and Programs for First-time Homebuyers
Apart from the programs and grants mentioned above, you can browse for special grants and deals like differed and forgivable mortgages administrated by states or local organizations. The following are helpful links to find a suitable one:
- Homeowner Assistance Fund by State
- State Housing Finance Agency
- Down payment assistance programs in every state
There is also the Down Payment Toward Equity act. It is not yet passed as law but once established, it would provide a grant program offering down payment and other assistance to underserved homebuyers.
To qualify for this grant, the applicant must be a first-time homebuyer or a first-generation homebuyer with an income at or below 120% of AMI. The amount of the grant can be up to $25.000.
Regarding Tax Credit for First-time Homebuyers, there were regulations regarding this provision, but they are no longer in force. There has been new legislation in April 2021, which still waits to be passed by Congress. It will make a refundable tax credit of up to $15.000 for first-time homebuyers.
Final Remark
The process of buying a home is a bittersweet one. On the one hand, you are paving the way for your very own place to settle and lay roots; on the other hand, it has multiple steps with various financial aspects. First-time homebuyer incentives act as the sweetener for the challenging parts. As we demonstrated in this blog, there are many options out there. You need to assess them thoroughly and see which fits your situation the best. It may take a bit long, but remember: home was not built in a day!
