Government has come up with various schemes to support first-time home buyers, who often find it difficult to secure funds for down payment and other costs.
A home is not just an investment but a personal joy and a stronghold that brings a sense of security to you and your family. Buying a home remains a dream for many, who fail to gather enough finances for the same. In these times of economic uncertainty, it has become even more imperative that one saves as much as possible in the purchase process. This obviously should not happen at the cost of poor workmanship and inferior materials going into construction of your home.
Taking out a mortgage for the purchase of your first home can be a daunting challenge due to the high down payment involved and also the taxing interest rates. This is one problem where a government grant can help you out. There are various types of government grants for home buyers. This includes the American Dream Downpayment Initiative, which was introduced in 2003. Apart from the grant programs of the U.S. Department of Housing and Urban Development (HUD), you may also apply for programs initiated by the states, local authorities and organizations to help home buyers in their territory. Grants make it easier to purchase a home as they give upfront finance for the down payment and other prohibitive costs that are part of the deal.
Quick Facts About Government Grants
There are various types of grants which can help people looking to purchase their new home. Though most programs have been developed by HUD, the department does not allot these grants directly. This is done through the local governments and non-profit organizations. The following are some basic facts about government grants for first time home buyers.
1. To begin with, one has to know that these grants are not loans, but government assistance for the development of the community in general.
2. No such grant program will provide you with 100% finance assistance for buying a house. In other words, none of these programs will offer you 100% cost of the house. In fact, most of these first time home buyer grants cover only less than 10% of the cost of the house.
3. Another important point to note is that these grants will only be available to those buyers who are eligible for a mortgage.
4. It is mandatory to attend the HUD-approved housing counseling class, so as to qualify for grants offered by these programs. Apart from enhancing your knowledge about finances and home-buying, such classes may also help you find ways to qualify for a mortgage.
5. A first time home buyer is a person who buys the principal home or residence as his/her first purchase, or the person has not owned (wholly or partly) a principal residence for the past three years (ending on the date of purchase of the new one). If he/she is married, these terms are applicable for the spouse too.
6. Even single parents without any permanent residence (even if they had owned a house, along with his/her spouse, during their marriage), are eligible for this grant. This term covers displaced homemakers too. Those with homes that are not attached to a permanent foundation and owners of homes that are not built on compliance with the building codes can also make an application for this grant.
7. The income of the applicant or household and the sale price of the proposed home, must not exceed the limits specified. Even bad credit may not matter, where there are specific provisions for the same.
Government Grants and Programs
There are various programs that are introduced by the government to assist citizens who find it difficult to buy a home due to financial difficulties.
1. American Dream Downpayment Initiative (ADDI)
One of the favorites among housing grant schemes, the American Dream Downpayment Initiative begun by Presidential order in 2003 has helped thousands of home buyers since its inception. It sanctions around $200 million in grants each year and provides allocation for all 50 states. This program, which was aimed at providing assistance for down payments, closing costs and rehabilitation projects, has a maximum limit of $10,000 or six percent of the home’s purchase price, whichever is greater.
2. Federal Housing Administration (FHA) Loan
One must remember that the FHA does not provide loans by itself, it insures the mortgages provided by certified lenders, enabling them to give mortgage loans to home-buyers.
FHA loans have certain eligibility criteria which a buyer must satisfy before the organization an proceed with loan approval. Also, the lending party will have certain standards of its own which must also be achieved before loaning can happen.
The FHA requires a minimum credit score of 500 to consider a loan application, however, the lenders credit requirements are then considered. Usually lenders require a minimum credit score of 620 to approve a loan. The advantage of an FHA approved loan is that unlike the 20% down payment on the purchase price required by conventional lenders, the FHA loans only ask for about 3%. Although not a grant program in the strict sense, the FHA loans place reduced burdens on buyers and the difference can be almost as good as a grant.
3. Community Development Block Grant (CDBG)
One of the oldest housing assistance programs by the HUD in the United States, this grant aims to provide communities in cities and urban areas with funds which are to be disbursed for the housing needs of the moderate and low income category of citizens. The money given under the grant goes to small units of the state government present in towns, which then allocate funds according to the community needs of the area. There is also provision for a loan guarantee program for the CDBG (Section 108 Loan Guarantee Program) which communities can use to get the loans insured.
4. HOME Investment Partnerships Program
HOME, as the grant program is known popularly, was enacted by the Title II of the Cranston-Gonzalez National Affordable Housing Act and is the largest federal grant given to State and other local authorities primarily to create affordable housing for the lower and medium income groups. It has a grant funding of nearly $2 billion per year and this is disseminated throughout the 50 states.
There are certain eligibility criteria for beneficiaries of the grant program. These are generally based on the income level of beneficiary families, according to the HUD adjusted median income levels for the specific areas. Generally beneficiary families should not have incomes beyond 60% of the median income laid down by the HUD. However, these criterion hold importance for the local jurisdictions getting HOME funding. Once this funding is available, they can choose how to go about disbursing the grant money.
5. Grants for Senior Citizens
Senior citizens can also avail the benefits of government grants if they are unable to meet the criteria for mortgages or home repair loans. Organizations such as the HUD and the Department of Agriculture (USDA) have grant programs which can assist senior citizens to the tune of $5000 to $7000, for the repair and upkeep of their homes. There are also grants which can help them purchase new homes.
There are several other grant programs in action around the country which help new buyers with funds and help reduce the upfront costs of purchasing a home. The terms and conditions and eligibility criteria differ with individual programs. So, it is always better to understand them, before choosing a program and applying for it.
The following is a list of states which have home purchase schemes funded by the government. The states not mentioned here may not provide grants as part of government funded initiatives, but have schemes which aim to help buyers get that dream home without too much financial hassle. These come in the form of mortgage loans with reduced interest rates which can add up to a large portion of savings.
Real estate buyers in Alaska can approach the The Alaska Housing Finance Corporation for first time buyer grants. There are several grant schemes available such as the Accessibility Modification Grants, Special Needs Housing Grant Program, Grant Match Program.
Home buyers can approach the Arizona Department of Housing for their grant needs. The Mortgage Revenue Bond scheme offered by the ADOH is a convenient method of meeting up to 5% of the cost of the house and using the money as down payment and cost assistance.
The Arkansas Development Finance Authority is the body in charge of helping out prospective homeowners. There are several programs which provide home purchasing assistance such as Down Payment Assistance Program, Mortgage Credit Certificate Program Guide and the ADFA’s Arkansas Dream Downpayment Initiative.
You can go to the Delaware State Housing Authority, which will assist you in gaining some funding for your new house. They have several assistance program running such as Homeownership Loan Programand the Neighborhood Stabilization Program (NSP) where the state purchases abandoned or foreclosed homes and resold to buyers which lower budgets.
The state has the Community Development Block Grant (CDBG)Program running which aims to provide suitable living to low and medium income families.
The Georgia Department of Community Affairs is where one will have to inquire for the states programs on grants. It has a full-fledged program known as the Georgia Dream Homeownership Programwhich is available to buyers who meet certain standards of income, purchase price etc.
The state is launching a grant program to help people purchase homes with government assistance. The body undertaking grant activities in the state will be the Department of Hawaiian Home Lands.
Grants for housing in the state of Illinois are provided by the Illinois Housing Development Authority. There is a grant program running with the body and can be availed of with respect to certain income qualifying conditions. Low income buyers can typically receive up to $3000 in funding and this may go up to $5000.
The agency responsible for making grants in Iowa is the Iowa Finance Authority. They have the FirstHome Program and the FirstHome Plus Program to provide buyers with affordable mortgages and down payment assistance.
The State of Kansas has the The Kansas Housing Resources Corporation which provides grants for home buyers. The First Time Homebuyer Program is the grant program run by the body and applications should be made as early as possible due to paucity of funds.
The Maine State Housing Authority handles the grants and home purchase assistance in the state of Maine. They have two programs theFirst Home Program and the Operation New Home, dedicated to providing low interest mortgages to buyers.
The HUD through its Homes and Communities Program provides funding to real estate developers and NGOs assisting buyers in their purchase of a new home.
The Missouri Housing Development Commission is in charge of providing grant assistance to prospective purchasers in the state. One of its programs is the Cash Assistance Loan or the CAL which helps buyers make cash down payments on their purchase. The grant program is known as the First Place Loan Program which gives assistance of up to 3% of the purchase price of the property.
New Hampshire Housing handles all grant related matters in the state. A grant scheme in running right now is the Single Family Mortgage Program, which can give a buyer a cash upfront of up to 3% of the mortgage amount.
Grant assistance in New Jersey is provided by the New Jersey Housing and Mortgage Finance Agency. They have grant programs running with very low rates of interest on mortgages and also provide assistance for closing costs.
The New York State Housing Finance Agency is the grant and assistance body in the state which can be approached by prospective home buyers. It provides a variety of mortgage grant programs with low interest rates. Also they offer mortgage schemes with almost no extra costs towards that of underwriting, pre-payment fines etc.
The American Dream Downpayment Initiative is active in North Carolina and buyers can approach the North Carolina Housing Finance Agency for grant details. The benefits can be as much as $7000 toward down payments.
The Start Program is run by the North Dakota Housing Finance Agency and this grant can give up to 3% of the mortgage costs for a buyer to a limit of about $3000.
The Ohio Housing Finance Agency assists buyers in their home purchase through the Down Payment Assistance Grant which can grant eligible buyers nearly 3% of the homes price.
The state of Oklahoma provides assistance to new homeowners through the Oklahoma Housing Finance Agency, which runs theOHFA Advantage, a grant scheme that offers low rates of mortgage interest and also a down payment of 3.5% of the purchase value of the house.
The Oregon Housing and Community Services is responsible for aiding new home buyers in the state and provides Purchase Assistance Loanschemes along with down payment assistance of up to $8000.
The Pennsylvania Housing Finance Agency handles the grants and assistance given to home buyers in the state. They run theHOMEstead program which though not exactly a grant, is a loan of up to $15000 which can be used to meet down payment and closing costs.
A person looking to invest in a home in South Carolina can get assistance in the form of a $4000 loan from the South Carolina Housing Finance and Development Authority, under its Down Payment Assistance Loan program. This amount is totally waived if the residence is lived in for at least 5 years.
The American Dream Downpayment Initiative is active here in South Dakota too. A grant is provided by the South Dakota Housing Development Authority to the tune of 3% of the purchase value, according to the purchaser’s income. This is not a loan but like an outright gift.
The State of Tennessee gives grants and housing assistance via theTennessee Housing Development Agency. Buyers going in for their first residence can avail of up to 4% of their purchase prices as grants. This amount is forgiven too if you stay in the home for a minimum of 5 years.
Under the aegis of the Texas Department of Housing and Community Affairs, people can avail of the HTF Homebuyer Assistance, a loan of in the range of $10,000 for down payment and other costs.
The Vermont Housing Finance Agency grants up to 3% of the mortgage amount, which is waived if the occupancy of the house completes a minimum of 4 years.
Grants and assistance to new home buyers in Wyoming is given by theWyoming Community Development Authority. They run the Homebuyer Assistance Program which gives assistance in the range of $2000 which can be used as down payment and other costs. It is also waived if the period of occupancy of the home reaches 30 years.
The above was only a brief overview about government grants. Though the basics are applicable for all, you may also find certain exceptions. The clauses may vary with individual applicants. So, it is always better to gain some knowledge about the same, with the help of an expert. Visit the U.S. Department of Housing and Urban Development (HUD) website and take a look at the programs available in your area. Choose the one that is best suited for you. Ensure that the funding under the chosen program is still on. Locate the property to be purchased and apply for the grant. If you are eligible for a mortgage, then apply for it too. Visit the local office of the HUD for assistance. You may either download the application form from the website or get it from the local office. Fill and submit the form with the necessary documents.