Grants to buy a house: Your down payment shortcut

Grants to buy a house? That sounds too good to be true. What’s the catch? Actually, there isn’t one. Many homebuyers receive home buying grants every year. These are effectively gifts, which don’t have to be repaid. These grants come from state agencies and nonprofits in the form of “down payment assistance.” They’re a 100% legit and acceptable way to cover your down payment when you get a mortgage. Really, the only hurdles are the availability of grants in your area — and your ability to qualify.

“Grants to buy a house” = down payment assistance

There are more than 2,500 down payment assistance programs (DPAs) across the United States. Some of these are grants, and some are loans. They all exist to help homebuyers. But they each have their own rules. So the following may not apply in every case. Most home buying grants cover only a limited geographical area, something that may or may not be to your benefit. We’ll list some nationwide ones below. But, before that, here are some general guidelines that apply to most programs.

Do you qualify for a grant to buy a house?

If you want a grant to buy a house, you’ll have to qualify for it. Rules vary by program, so the following is just a sample of what you’re likely to see:

  1. Funds are often available on a first-come-first-served basis. So be prepared to wait for funding to be replenished or contact multiple programs.
  2. Not all down payment assistance programs (DPAs) offer grants. Many provide low- or no-interest loans that you pay down in parallel with your mortgage. Sometimes, those loans are forgiven over time, meaning they turn into grants.
  3. Most (but not all) DPAs help only first-time homebuyers. But that often means only that you can’t have owned a home in the last three years. If you did so before then, you may be fine.
  4. These grants and loans cannot be used for vacation homes or investment properties. DPA programs provide assistance to creditworthy individuals on moderate incomes buying ordinary homes in which they’ll live.
  5. Many DPAs cap the amount they’ll grant or lend you. And some are intended to help only those on lower incomes. So check their terms and conditions before you apply.
  6. The grant or loan should not be an issue with your mortgage lender. It will just want to be sure you can comfortably afford all your mortgage payments without further assistance.
If the above applies to you, you may be in line for a grant low low-cost loan to buy a house. In that case, here are just a few of the programs that operate nationwide.

Local grants and loans to buy a house are often best

Some home buying grants or DPAs are from not-for-profit organizations. But the majority of them come from state and area housing finance agencies (HFAs). They receive federal grants each year to help homebuyers with down payments. So, unless you’re eligible for help from one of the sources listed below, your starting point for down payment assistance is likely your state’s HFA. How do you get in touch with that? The National Council of State Housing Agencies has a webpage that lists them all, together with links to each HFA’s website.

Good Neighbor Next Door grants- 50% off the house

There’s one federal government program that makes all other forms of down payment assistance look insignificant. The Good Neighbor Next Door (GNND) program provides a 50% discount on the list price of the home.

But it works only for qualified people, including:
  • Law enforcement officers
  • Firefighters
  • Emergency medical technicians Teachers working pre-kindergarten through 12th grade
And those special people must be willing to live in “revitalization areas.” The government designates where those are, often because the neighborhood is currently struggling. If you’re in one of those occupations, and are prepared to commit to living for at least three years in a neighborhood that’s still developing, then you’re going to want to explore this further.

Grants to buy a house can come from your mortgage lender

Mortgage lenders don’t typically give away cash to homebuyers. But some do. So it’s worth talking through your plans with yours.

For example, Bank of America offers qualified mortgage borrowers help in two ways:
  1. Up to $7,500 in closing costs — This is mostly for nonrecurring closing costs, such as title insurance, recording fees and appraisals. But the grant may also be used to purchase “discount points” that buy you a lower mortgage rate.
  2. Up to $10,000 in down payment assistance — But only in specified geographical areas. The actual caps are 3% of the purchase price with a maximum of $10,000, whichever is the lower.
Don’t expect most lenders to be so generous. But it’s worth exploring your needs with one. Even if a lender can’t help you itself, it may point you toward a local program that might provide worthwhile assistance.

Home buying grants from Fannie Mae

Let’s be clear. Fannie Mae won’t help with your down payment. But, under its HomePath Ready Buyer program, it may give you a grant of up to 3% of your new home’s purchase price as a contribution to your closing costs. And, of course, that indirectly helps with your down payment. Because the less you have to pay to close, the more you have for that down payment.

There are rules, including:
  1. Your mortgage must be backed by Fannie Mae and the home must be listed in the HomePath program.
  2. You must complete an online homebuyers’ educational course ($75, refundable when you buy under the HomePath program) and submit your course certificate early in the purchase process.
  3. Fannie requires you to move into the home within 60 days of closing.
  4. You mustn’t have owned a home within the previous three years.
This could be worth a lot to the right “first-time buyer.” Just one thing: You’ll only get 3% of the purchase price if your actual closing costs add up to that much. A cap means you won’t get money back if yours are lower.

Mortgage credit certificate (MCC) program — tax credits for home buyers

The mortgage credit certificate (MCC) program doesn’t directly give grants to buy a house. But it does make home buying more affordable That’s because it lets you claim a dollar‐for‐dollar tax credit for some of the mortgage interest you pay — up to $2,000 each year. Over the years, that can add up to serious savings. And mortgage lenders may take MCCs into account when they’re deciding how much you can borrow. Who’s in line for this help? Well, you’ll typically be a first-time buyer on a low or moderate income. Your income will be compared with the median income in your state or area to see if you qualify.

Zero-down VA loans and USDA loans

VA loans and USDA loans don’t include a grant to buy a house. But they do let you qualify with zero down — which can be almost as good. Mortgage rates are typically below-average with these programs, too. Only veterans, current service members, and a few closely associated groups are eligible for VA loans. Those that are can buy with zero down. And as of 2020, there’s no max loan amount for borrowers. That possibly makes VA loans the best mortgage out there.

USDA loans, on the other hand, have two separate requirements. The house you’re buying has to be in a low-population, rural or suburban area. And your income can’t be more than 15% higher than the local median. Also, you can only get a fixed-rate mortgage — not an adjustable-rate one (ARM). If those apply to you, USDA financing is another excellent option.

Alternatives: Low-cost financing

If you can get a grant to buy a house, you’re in great shape. Not everyone qualifies for these programs. For those who don’t qualify for a grant or down payment assistance loan, there are other options. FHA loans and conventional loans both have programs with low down payments and easier qualification requirements.

Find out what kind of affordable financing you qualify for by connecting with a lender. Remember — advice is free. Chatting with a lender doesn’t mean you’re beholden to them in any way. And a professional can give you better, personalized options.

The Mortgage Reports Editor: Feb. 10, 2020

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