Looking for downpayment and closing cost assistance, but not sure where to start? Ask your lender about South Dakota Housing Development Authority's Fixed Rate Plus loan. If you qualify, you may receive 3% or 5% in downpayment and closing costs assistance to help with financing your mortgage.
The Fixed Rate Plus loan allows for downpayment funds of three (3) or five (5) percent of the first mortgage loan but will include a second mortgage at 0% interest rate, due-on-sale or satisfaction, no payments and no additional fees. Ask your lender for more details and to see if you qualify.
Down Payment and/or Closing Cost Assistance Options
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Down Payment Assistance Grant*
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- 11 First-Time Home Buyer Grants and Programs in 2022
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Author: Dan Green | Last Updated: October 12, 2022
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
The typical U.S. home buyer spends 7 years saving for a down payment. That’s a long time to wait to purchase a home – especially because life gets more expensive and rents rise annually.
When you’re ready to buy, you should be able to buy. Special programs designed for first-time buyers – including first-time home buyer grants – can help you achieve your American Dream sooner.
Let’s look at the first-time home buyer grants and programs that may be available to you.
First-Time Home Buyer Grants, Programs, and Down Payment Assistance
Table of Contents
- → What Is a First-Time Home Buyer Grant?
- → What Are Some First-Time Home Buyer Grants?
- → What is a First-Time Home Buyer Program?
- → What Are the Different Types of First-Time Home Buyer Programs?
- → Frequently Asked Questions from the Chat
What Is a First-Time Home Buyer Grant?
A first-time home buyer grant is a specific grant type designed to create new homeowners nationwide. Governments award grants on the local, state, and federal level; and charitable and housing foundations nationwide.
Grants don’t require repayment because the grant recipient performs a public good. For first-time home buyers, that public good is homeownership.
Homeownership is the keystone of the U.S. economy because homeowners:
- Stabilize neighborhoods of all shapes
- Increase prosperity within all communities
- Build generational wealth within families
According to government research, $10,000 grants to first-time home buyers can increase homeownership by 34 percent, so it’s no surprise that Congress recently introduced eight bills promoting grants and tax credits for first-time home buyers, including the LIFT Act.
When homeownership rates rise, it’s a greater economic good.
What Are Some First-Time Home Buyer Grants?
1. The $25,000 Downpayment Toward Equity Program – Expected in 2022
In 2021, Congress introduced a bill titled The Downpayment Toward Equity Act, a home buyer grant for first-generation home buyers with extra grant money available to renters with socially or economically disadvantaged backgrounds.
The Downpayment Toward Equity Act awards up to $25,000 so renters can buy their first home. Grant monies can be used to make a down payment, pay for closing costs, lower your mortgage rate by using discount points, and cover other expenses, too.
Check your eligibility for the $25,000 Grant.
2. National Homebuyers Fund
The National Homebuyers Fund is a non-profit public benefit corporation. It sponsors first-time and repeat home buyers with up to 5 percent of a home’s purchase price.
First-time buyers can use the program with a conventional, FHA, VA, or USDA loan, and it forgives the loan five years after closing. Renters can’t apply for the National Homebuyers Fund grant directly – only your mortgage company can do it. Call (916) 444-2615 to get a list of participating lenders.
The first step in the grant process is getting pre-approved.
3. State and Local Government Grants
Some state and local governments sponsor housing grants for qualified first-time buyers. Grant sizes start at $500. Monies can be applied toward closing costs, mortgage rate reduction, or a down payment.
Many local housing grants require buyers to meet minimum credit standards and earn a household income within a specific, lower-income range.
To qualify for a state or local housing grant, find your municipality’s public-facing website, search for “housing assistance” or “housing grants,” and review your local program requirements.
See if you qualify here.
4. The Homebuyer.com Forgivable Mortgage
The Homebuyer.com forgivable mortgage is a mortgage that behaves like a housing grant. Approved buyers receive cash for a down payment of up to 5% of their purchase price with no interest charged and repayment required.
Not everyone is eligible for the Homebuyer.com forgivable mortgage. At a minimum, recipients must have average credit ratings, qualify for an FHA loan, and agree to accept a 30-year fixed-rate mortgage. Buyers may also be required to attend a 1-hour online educational seminar.
Check your eligibility for the forgivable mortgage here.
Get pre-approved for a mortgage today.
What is a First-Time Home Buyer Program?
First-time home buyers programs are designed to help people who have never before owned their own home. Similar to first-time home buyer grants, these programs typically come from federal, state, or local governments. You can find them as down payment assistance, forgivable mortgages, closing costs, or tax credits.
What Are the Different Types of First-Time Home Buyer Programs?
1. Low Down Payment Conventional Mortgages
These four programs from Fannie Mae and/or Freddie Mac are available for first-time home buyers and offer low down payments and low credit score requirements.
HomeReady: Backed by Fannie Mae, this 3 percent down payment mortgage has a 620 minimum FICO score requirement. Buyers using a HomeReady loan to purchase a HomePath property also receive a $500 closing cost credit. The HomePath Ready Buyer program enables buyers to qualify for a 3% cash contribution toward the mortgage or closing costs.
Home Possible: This 3 percent down payment mortgage has a 660 minimum FICO score. Freddie Mac backs Home Possible.
Conventional 97: Backed by Fannie Mae and Freddie Mac, the Conventional 97 mortgage requires 3 percent down and a 620 minimum FICO score.
Get pre-approved to see if you qualify for these programs.
2. Government-Backed Mortgages with No-or-Low Down Payment
These government-backed mortgage loans offer first-time home buyers options to buy a home with low or no down payment and low credit scores.
FHA Mortgage: These mortgages require just 3.5 percent down and a 580 minimum FICO score.
USDA Mortgage: Available in lower-density areas such as suburbs and rural areas, first-time buyers require no down payment and a 620 minimum FICO score.
VA Mortgage: For active-duty military members, veterans of the armed services, and surviving spouses, VA loans offer 100% financing with a 620 minimum FICO score.
Get pre-approved now.
3. Discounted Homes from HUD
The Good Neighbor Next Door Program is a housing program created by the U.S. Department of Housing and Urban Development (HUD) that sells homes for half-price. This program is available to teachers, firefighters, law enforcement officials, and emergency medical technicians who work in the same community as the available home.
Buyers must live in the home for a least three years.
See if you’re eligible by getting pre-approved.
4. Down Payment Assistance Mortgages
Down payment assistance mortgages are loans that replace a home buyer’s typical cash down payment with borrowed money at favorable terms.
Access to down payment money at below-market mortgage rates is one form of down payment assistance. Instead of making a down payment using cash from a bank account, home buyers borrow money from a bank at 1 percent with ten years to pay it back.
Deferred mortgages are another form of home buyer down payment assistance.
A deferred mortgage is a loan that requires no repayment while you still live in the house that you bought. You repay the deferred mortgage only when you sell your home or refinance it.
For example, let’s say you borrow $25,000 for a down payment using a deferred mortgage and choose to sell in five years because your home’s value doubled. After your closing, you pay the $25,000 back to the lender and keep the rest of the profit for yourself.
Typically, down payment assistance mortgages are available through local foundations and municipal governments only. They’re often limited to first-time buyers whose income falls below area averages and whose credit history shows a decent record of on-time payments. Learn more about down payment assistance programs.
Find out if you’re eligible here.
5. Forgivable Mortgages
Forgivable mortgages are loans for down payments that lenders erase once a buyer meets certain time-based conditions.
As an example of how forgivable mortgages work, let’s say a first-time buyer uses a forgivable loan to make its $15,000 down payment.
After five years, if the buyer still lives in the home and has paid on its primary mortgage as agreed, its lender will write-off the second, smaller $15,000 mortgage with no interest due and no payments made. The loan is forgiven and its lien removed from title.
Municipal governments and communities like forgivable mortgages because forgivable mortgages promote long-term homeownership, neighborhood involvement, and community investment. If you’ve ever heard of cities paying people to move there, you’ve seen forgivable mortgages in action.
Homebuyer.com offers a nationwide forgivable mortgage through our instant mortgage application.
6. First-Time Home Buyer Tax Credit
Tax credits are dollar-for-dollar reductions to a person’s tax bill to promote specific consumer behaviors, such as buying a first home.
Homeowners and home buyers already get access to tax credits through the IRS and its mortgage interest tax deductions. On a rolling basis, though, federal and state governments add additional tax benefits for buyers of homes.
For example, home buyers can get tax breaks for installing solar panels because it reduces the load on the local power grid. And, in 2009, to offset an overwhelming supply of homes for sale, first-time home buyers received up to $8,000 in tax credits for buying their first property.
Today, Congress is discussing a similar tax credit for home buyers. There is a proposed $15,000 tax credit for first-time home buyers, retroactive to December 31, 2020, that subtracts up to $15,000 in home buyer tax liability.
Check your eligibility for the program here.
7. Closing Cost Assistance Programs for Home Buyers
Closing cost assistance programs are home buyer stimulus plans that pay up to 100% of a buyer’s purchase closing costs, including title expenses, transfer taxes, and mortgage fees.
Typically, home buyers apply for closing cost assistance through their local housing agency, separate from their lender. You can look up your state’s housing agency on the National Council of State Housing Agencies website. The buyer and the home must meet the agency’s minimum quality standards.
Closing cost assistance programs target lower-income home buyers with average credit scores, at least.
The first step towards getting closing cost assistance is getting pre-approved.
Frequently Asked Questions from the Chat
How do you buy a house if you have no money?
Home buyers with no money for a down payment can use housing grants, down payment assistance, and forgivable mortgages to purchase a home with no money down. Specific home buyers can apply for 100% mortgages, including the USDA and VA loans.
Read more about buying a house with no money.
What is an NHF grant?
An NHF grant is a housing grant for first-time home buyers, awarded by the National Homebuyers Fund. NHF awards housing grants for up to 5 percent of a home’s purchase price.
Which loan is best for first-time home buyers?
The majority of first-time home buyers use 30-year fixed-rate mortgages backed by Fannie Mae or Freddie Mac to purchase their first home but that doesn’t make it the “best loan” for first-time buyers. Mortgages are not one-size-fits-all. Get pre-approved and let your lender advise you on which mortgage loan is best for you.
Read more of our other first-time home buyer tips.
Get pre-approved for a mortgage today.
Dan Green is a former mortgage loan officer and an industry expert. He's appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.
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