So, you're thinking about buying your first home. Congratulations! Homeownership is a huge accomplishment and milestone in life.
It's also a big financial decision. So, with prices going up and recession becoming the talk of the town, you may be wary about getting a mortgage right now.
For some experts, though, now might actually be a great time to buy a house as interest rates are at their historic lows, and there are more houses on the market than buyers. But you may be wondering, “How am I going to come up with the down payment and closing costs?” Thankfully, there are a number of government programs and private grants available that can help cover some or all of the costs associated with buying a home.
In this article, we'll outline some of the most popular programs and how they work. So, read on to find out which ones you may qualify for and which is the best option that will help you achieve your goals.
Types of Homeownership Financial Assistance
Many potential homebuyers mistakenly believe that all government-sponsored initiatives aimed at helping them finance a home purchase are the same. In reality, there are two distinct types of programs available to those looking to become homeowners: grants and programs. Understanding the differences among them will help homebuyers narrow down their choices and find the best assistance that suits their financial situation best.
When thinking of financial assistance, most people are actually looking for grants which don’t require repayment. Grants are typically awarded to low- and moderate-income individuals and families as well as to first-time homebuyers for use in various aspects of purchasing a property. Mainly designed as a contribution to the public good, grants promote homeownership and community. Homeownership contributes to the strength of communities by stabilizing neighborhoods and supporting local businesses. As a result, first-time homebuyer grants help to create a stronger society by encouraging more people to become homeowners. In turn, this creates healthier and more vibrant communities for everyone.
Programs, on the other hand, are government-sponsored initiatives designed to help new buyers purchase their first home. These programs typically offer low down payment options and other financial assistance, making it easier for first-time buyers to enter the housing market. Moreover, you may be able to qualify for a loan with a lower interest rate if you agree to pay Private Mortgage Insurance (PMI). PMI is insurance that protects the lender in case you default on your loan. The cost of PMI is typically added to your monthly mortgage payment. However, you may be able to cancel PMI once you have built up enough equity in your home.
Financial Assistance Grants and Programs
Here are some of the most popular grants and financial assistance that may be able to help you get a house:
The National Homebuyers Fund
The NHF is a national program that provides down payment and closing cost assistance to eligible homebuyers. The program is available to both first-time homebuyers and repeat buyers. There are no income limits or geographic restrictions.
The NHF Down Payment Assistance program is the most popular grant program offered by the NHF. The program provides up to 5% of the loan amount in down payment assistance, which can be used for closing costs, pre-paid expenses, or principal reduction.
To qualify, homebuyers must complete a homeownership education course and have a minimum credit score of 640. In addition, they must contribute at least 1% of the purchase price from their own funds.
The Good Neighbor Next Door Program
Technically, this is a forgivable loan and not really a grant. It is an HUD initiative that allows certain public servants to purchase homes at a 50% discount. The homes must be located in designated revitalization areas, and the purchasers must agree to live in the home for at least three years. The program is open to law enforcement officers, firefighters, teachers, and EMTs/paramedics.
To qualify, interested individuals must submit an application through their local HUD office. If approved, they will be given a list of eligible properties and will have seven days to select a home and sign a sales contract. After closing on the home, the purchaser will have 30 days to move in. The Good Neighbor Next Door Program is an excellent way for public servants to save on the cost of homeownership. For more information, interested individuals should contact their local HUD office.
VA Loan Guaranty
The VA Loan Guaranty program backs loans made by private lenders to help eligible servicemembers, veterans, reservists, and their surviving spouses buy homes. The grant is available to first-time homebuyers who meet certain income and other requirements.
To qualify for the grant, you must have a certificate of eligibility from the Department of Veterans Affairs. You can get a certificate of eligibility from a VA regional loan center or from a lender that participates in the VA Home Loan program. Once you have a certificate of eligibility, you will need to complete a loan application and submit it to a participating lender.
USDA Rural Development Loans and Grants
The United States Department of Agriculture (USDA) offers different types of grants that help families buy a home. The USDA Rural Development Loans and Grants are available to any rural area, and you do not have to be a first-time homebuyer to qualify. There are income limits that vary by county, but you may still be eligible even if your income is slightly above the limit.
To qualify for the grant, you must be planning to live in the home as your primary residence, and you must have a good credit history. If you meet these requirements, you can apply for the grant online or by mail. The grant can be used for down payment assistance, closing costs, or even renovations.
FHA loans are backed by the federal government and can be an option for borrowers with low credit scores or limited funds for a down payment.
There are a few requirements you'll need to meet in order to get an FHA loan as a new homebuyer. First, you'll need to have a good credit score - ideally, at least 580. You'll also need to be able to show that you have a regular source of income and that you have enough money saved up for a down payment (a minimum down payment of 3.5%). Finally, you'll need to provide proof that you're able to make the monthly mortgage payments.
FHA 203(k) Loan
The FHA 203(k) rehabilitation loan is a great solution for homebuyers who want to purchase a fixer-upper. The program allows buyers to finance the purchase price of the home plus the cost of repairs and renovations into a single mortgage loan.
To qualify for the program, buyers must have a minimum credit score of 640 and a down payment of 3.5%. In addition, the property must be a primary residence, and the repairs must be recommended by an HUD-approved consultant. You must also have a steady income. You will also need to provide a detailed proposal for the repairs or renovations that you plan to complete. Once you have been approved for the loan, you will then have up to six months to complete the work.
HUD's Dollar Homes program is designed to help low-income families find affordable housing. The homes in the program are typically foreclosures that have been abandoned by their previous owners. As a result, they may require some repairs before they are inhabitable. However, families who are willing to put in the work can find a great deal on a new home through HUD's Dollar Homes program.
To qualify for the program, families must have an income that is below the median for their area. In addition, they must be able to demonstrate a need for housing assistance. Families who qualify for the program may be able to purchase a home for as little as $1.00. Home buyers will have to bid on properties through the HUD Home Store. However, they will need a licensed agent or broker to submit their bids.
Other Types of Financial Assistance for Homebuyers
Some cities and counties offer programs that can help with things like closing costs or down payments. Check with your local housing authority to see what might be available in your area.
These are just a few of the many types of financial assistance that might be available to you if you're looking to purchase a home.
Down Payment Assistance Programs
In addition to grants for first-time homebuyers, there are also down payment assistance programs that can help you get into a home with little or no money down. Here are some popular down payment assistance programs:
Private Homebuyer Grants
In addition to government programs, there are also a number of private organizations that offer grants to help cover the cost of purchasing a home.
Purchasing a home is a big financial decision—but it doesn't have to be an unattainable one. There are a number of programs out there that can provide you with the assistance you need to make your dream of homeownership a reality. So, whether you're a first-time homebuyer or just looking for more affordable financing options, be sure to research the different types of grants and assistance programs that might be available to you.