Purchasing a home may rank at the top of your list of financial goals, but if you have little or no money for a down payment, you may have years of saving to do before you can buy. Enter first-time homebuyer grants -- free money that fills in the gap between the cost of buying a home and the amount you're able to contribute. No federal grant covers the entire cost of buying, according to the Department of Housing and Urban Development, which administers federal grant programs. If you can get a mortgage, however, you may qualify for grants from the government or local organizations to offset home buying costs.
First-time Buyer Basics
Most homebuyer grants and all grants administered by the federal government require first-time homebuyer education. The financial counseling courses prepare you for the mortgage application process and help you budget for homeownership. To get a grant, you must qualify for a mortgage, which will mean proving income, assets and an acceptable credit history. In general, federal and local grants target a specific area, or a group of professionals, such as teachers, and have income restrictions. Your household size relative to your annual income may not exceed pre-determined low- or moderate-income levels for a given area.
Housing Finance Agency Help
Start your search for first-time hombuyer grants with your state's local housing finance agency. HUD provides federal funds to states and states disperse funds to counties. Your state's housing finance agency can provide a list of community agencies and organizations in your county that are approved to work with HUD grant programs. Then contact the individual organizations for details, such as grant availability, eligibility requirements, and cooperating mortgage lenders. You can find non-federal grants through independent organizations and nonprofits. For example, the Military Housing Assistance Fund provides grants that cover your closing costs.
Find A Lender and Loan
Not all mortgage originators -- brokers, banks or credit unions -- are approved to make home loans in conjunction with first-time homebuyer grants. Also, only certain loan programs can be used in conjunction with a grant. The Federal Housing Administration, for example, is one of the most widely used programs by first-time homebuyers with grants. The FHA, an agency within HUD, helps low- and moderate-income homebuyers and requires a small down payment of 3.5 percent. The FHA allows grants to cover the down payment plus closing costs. Lenders also offer their own line of loan programs to boost homeownership opportunities, which also may have low down payments.
Choose the Right Home
Choose a home that meets the grant program's requirements. For example, some programs require that you purchase in a certain neighborhood or tract designated for revitalization. The home must pass both the mortgage lender's and the grant program's requirements for condition and value, as determined by a home appraisal. Occupancy restrictions also apply: You must use the home as your primary residence and move into the house within a certain amount of time -- usually 30 to 60 days -- within closing.