Grants for First-Time Home Buyers

Becoming a homeowner is a major life goal for many Americans. But trying to save enough money for a down payment and closing costs on a home can be a challenge—especially when you consider the fact that the home prices have increased significantly in recent years.

According to the National Association of Realtors, the median home sale price was $389,400 in the first quarter of 2024. The figure represents a 5.0% increase compared to the previous year. And by April 2024, the median home sale price in the United States rose to $407,600.^{[1] [2]}

Trying to come up with a 20% down payment on a conventional mortgage loan could feel like an unrealistic goal depending on your financial situation. Even a much smaller down payment of 3.5%—the amount you need to set aside for a down payment on most FHA loans—could be an obstacle to homeownership in many situations. And if you’re a first-time home buyer, saving for a down payment may feel even more out of reach.

On a positive note, there are first-time home buyers grants, incentive programs, and low-cost mortgages available that may be able to assist you. The guide below will help walk you through some of the solutions for first-time home buyers that could make homeownership more accessible.

What are first-time buyer grants and programs?

First-time home buyer grants and programs can provide financial assistance to people who have a goal of becoming homeowners for the first time. In some cases, you may be able to qualify for these types of programs even if you’ve purchased a home in the past.

In general, assistance for first-time home buyers falls into one of the following categories.

• Grants for first-time home buyers
• Affordable mortgage programs for first-time home buyers
• Down payment assistance programs

Each category above has its pros and cons. (See below for more details.) And in some cases, you may be to stack multiple types of financial assistance together to make getting into a home even more affordable.

First-time buyer grants and incentives

Grants for first-time home buyers are not loans, but rather non-repayable funds. As a result, grants can be an especially attractive way to try to find the funds you need to purchase a home.

Would-be homeowners may be able to apply grant funds toward a down payment, closing costs, and sometimes both. Homebuyer incentive programs may also help cover these expenses or to reduce the cost of homeownership in other ways.

Grants and homebuyer incentives are sometimes available from individual mortgage lenders. You may also find these types of home buyer assistance programs from government organizations, businesses, and perhaps from charitable or local community organizations.

If you’re not sure where to start your research, consider reaching out to your local state housing finance agency to see what types of homebuyer incentive programs and grants may be available. The U.S. Department of Housing and Urban Development (HUD) website is another resource that may help you find home buying programs available your state or local government.

How to qualify for a first-time home buyer grant

Before you can qualify for a grant or a first-time buyer incentive program, it’s important to understand that you’ll need to meet certain requirements. Eligibility criteria can vary from one program to another, but there are common expectations you might want to consider.

• Loan limits: First-time home buyer programs may place limitations when it comes to the purchase price of the home you’re interested in purchasing. However, home price limits might vary depending on the grant or incentive program or your location.
• Income limits: In general, first-time home buyer grants tend to be available to borrowers with low to moderate incomes. So, you should expect to answer questions about how much you earn when you apply for this type of program. If your income is too high, you might be ineligible for assistance.
• Residence restrictions: Grants and incentive programs are typically only available to homebuyers who plan to live in the property they’re purchasing. If you’re buying a home to rent out or to use as a secondary residence, you may not qualify.^[3]
• Homebuyer education: You might need to complete a homebuyer education course to qualify for a grant or home buyer incentive program.
• Credit requirements: Some programs for first-time home buyers require borrowers to have a minimum credit score to participate.
• First-time home buyer restrictions: In some cases you may need to be a first-time home buyer to qualify for certain grants or incentive programs. But you may be eligible for some programs if enough years have passed since you last owned a home.

How to apply for a first-time home buyer grant

The application process will differ from one first-time home buyer grant or incentive program to the next. Below are four programs to consider if you’re searching for financial assistance during the home buying process.

1. National Homebuyers Fund

The National Homebuyers Fund (NHF) is a nonprofit organization that offers a forgivable cash grant program to help support affordable housing throughout the United States. You can’t apply for the NHF directly. Instead, eligible borrowers (first-time homebuyers and repeat buyers alike) work with a participating lender to apply for the program. If eligible, borrowers can use NHF grants to help cover down payment requirements or closing costs—up to 5% of the loan amount.^[4]

2. PNC Closing Cost Assistance Grant

PNC Bank offers eligible borrowers the PNC Closing Cost Assistance Grant. The grant is worth $5,000 that you can apply toward (but not exceed) the down payment or closing costs on your mortgage loan. The bank allows eligible borrowers to apply the grant toward the purchase of a primary or limited cash out refinance loan. However, you don’t have to be a first-time borrower to qualify.^[5]

3. Bank of America grants

Bank of America offers qualified home buyers two grant options with the potential to make the process of purchasing a home more affordable.

• America’s Home Grant®: Eligible home buyers may receive up to $7,500 in lender credits to use toward closing costs in select locations.
• Down Payment Grant: Eligible homebuyers may receive up to 3% of the purchase price ($10,000 maximum) to use toward down payment costs. Again, this grant is only available in certain markets.^[6]

4. Wells Fargo grants

Eligible Wells Fargo customers may be able to take advantage of two different grant programs with the potential to reduce the costs associated with buying a home.

• Homebuyer Access: This grant can give qualified borrowers up to $10,000 in down payment assistance funds. Yet the grant funds are only available in select markets and are limited to borrowers who earn 120% of the median income for their area.
• Dream. Plan. Home. This grant provides up to $5,000 in closing costs for eligible borrowers who are purchasing a primary residence. It’s available to borrowers who earn up to 80% of the area median income (in select markets only).

It’s also worth noting that borrowers can combine both of the Wells Fargo grants above with other assistance programs.^[7]

Affordable mortgage programs for first-time buyers

When you’re shopping for a home loan, one of the first questions you should ask a mortgage lender is what kind of home loans it offers. Finding an affordable mortgage with a lower interest rate and low down payment requirements could make homeownership more accessible.
It’s also important to compare loans from multiple lenders to make sure you find the best deal available.

Here are some examples of affordable mortgage programs for first-time home buyers you may want to consider.

1. Government-backed home loans

Government-backed mortgage loans can often be a good fit for first-time home buyers. The government doesn’t issue these home loans to borrowers but rather insures them to provide extra protection for the lender.

If you use a government-backed mortgage to buy a home and don’t repay the lender as promised, the federal government will repay the lender a portion of the money you borrowed. Because of this arrangement, the risk is reduced for the lender. As a result, lenders may be comfortable offering lower interest rates to borrowers.

Lenders may also be willing to loosen their approval standards and loan money to borrowers with lower credit scores or lower down payment requirements than usual. This combination often makes homeownership more accessible to people who might find it difficult to qualify for a mortgage under different circumstances.

Below are some common examples of government-backed home loans.

• FHA loans: FHA loans are backed by the Federal Housing Administration. These home loans may be available to borrowers with a FICO® Score of 580 or higher (depending on the lender) and a downpayment of 3.5%. Some lenders may work with borrowers with a FICO Score as low as 500 and a 10% down payment. Yet although it may be possible to buy a house with bad credit using an FHA loan, not all lenders offer mortgages to borrowers with credit scores this low.^[8]
• VA loans: VA loans, backed by the Department of Veterans Affairs (VA), make affordable housing possible for active-duty service members, qualified veterans, and surviving spouses. The government-backed loans typically feature lower interest rates, no down payment, limited closing costs, and no private mortgage insurance for eligible borrowers. The VA also doesn’t set a minimum credit score requirement for VA loans. However, each lender is free to come up with its own loan qualification criteria.^{[9] [10]}
• USDA loans: The U.S. Department of Agriculture (USDA) backs USDA mortgages—an affordable home loan program available to eligible borrowers in rural areas. In many cases, USDA loans don’t require a down payment. The USDA also doesn’t set a minimum credit score requirement for USDA loans. Yet many lenders require borrowers to have at least a 620 FICO Score to qualify for this type of financing.^[11]

2. Low down payment mortgages

Conventional loans are another financing option to consider when you’re buying a home. Yet traditional conventional mortgages typically require a 20% down payment. A home loan that requires such a large down payment might not be a great fit for a first-time home buyer.

However, there are several conventional mortgage loans available that offer lower down payment options. Below are a few examples of low-down payment conventional mortgages.

• Home Possible®: Home Possible, a Freddie Mac conventional mortgage, gives qualified low-income borrowers a chance to purchase a home with only a 3% down payment. The program is available to first-time home buyers and repeat buyers alike.^[12]
• HomeOne®: HomeOne® is another Freddie Mac conventional mortgage that aims to make homeownership more affordable for first-time home buyers and other eligible borrowers. The home loan program features a low down payment of just 3%. However, you’ll need to complete a homebuyer education course to be eligible for financing if it’s your first time purchasing a home.^[13]
• HomeReady: HomeReady is a Fannie Mae conventional home loan program that offers a 3% down payment and cancellable mortgage insurance for eligible low-income borrowers. For a limited time, very low-income borrowers may also apply for a $2,500 credit to apply toward their down payment or closing costs.^{[14] [15]}

Down payment programs for first-time home buyers

For many people, saving money for a down payment and closing costs can be a significant obstacle to homeownership. Over half of potential home buyers in the United States say they can’t afford to save for a down payment and closing costs according to a recent Bankrate survey.^[16]

Yet there are resources, in addition to those listed above, you may be able to use to help with these types of costs. Below are a few down payment assistance options to consider.

Down payment assistance (DPA) loans

If you have trouble saving a down payment on a mortgage on your own, your lender might be able to recommend a mortgage program that allows you to use a down payment assistance (DPA) loan. Each DPA program is unique. However, a DPA loan is often a second mortgage that’s secured by the home you purchase. These types of loans are sometimes available through state housing agencies or community organizations to eligible homebuyers.

In some cases, a DPA loan may feature very low interest rates. However, other DPA loans may be deferred (aka no payments) and forgivable after a certain number of years passes. But if you move or decide to sell your home before the forgiveness takes effect, you would need to pay off the loan. Before you decide to use a DPA loan to help cover your down payment or closing costs, it’s important to have a clear understanding of its terms and conditions.

Individual Development Accounts (IDAs)

An Individual Development Account (IDA) is a tool that low-income consumers can use to achieve important financial goals such as starting a business, paying for educational expenses, or buying a home. IDAs—available through certain public housing and nonprofit organizations—can also serve the purpose of helping would-be homeowners save money for down payment and closing costs.

Participants in sponsored IDA programs typically enroll for one to five years. During that time they may receive housing counseling. IDA participants also have an opportunity to contribute funds to a savings account and receive a dollar-for-dollar match for their efforts. (Some programs may even match the money that participants save at a higher ratio—as high as six matched dollars for every dollar saved.)^[17]

Employer-sponsored programs

Some employers and labor unions offer incentive programs to help employees with costs related to buying a home. These programs could help cover part of your down payment or closing costs in the form of a forgivable loan, grant, or other type of down payment assistance.

Employer-sponsored home buyer programs are often a result of joint efforts between state governments and employers in an effort to attract qualified workers to an area. So, these types of programs are not available to everyone.

However, it doesn’t hurt to research your options. Setting up a meeting with your HR or union representative might be a good place to start if you want to find out whether any home buying incentives are available to you.

Bottom line

As a first-time home buyer, the pressure to come up with money for a down payment and closing costs can feel overwhelming. But there are many resources available that can help make the path to homeownership easier to navigate.

Sources

1. Nar.realtor. “Single-Family Home Prices Had Gains in 92.3% of 221 Metro Areas in 2024 Q1. https://www.nar.realtor/blogs/economists-outlook/single-family-home-prices-had-gains-in-92-3-of-221-metro-areas-in-2024-q1#:~:text=National%20median%20prices%20rose%205.0,the%20first%20quarter%20of%202024
2. Nar.realtor. “Latest Housing Indicators.”https://www.nar.realtor/research-and-statistics
3. Hud.gov. “About Good Neighbor Next Door.” https://www.hud.gov/program_offices/housing/sfh/reo/goodn/gnndabot
4. NHFLoan.org. “NHF Down Payment Assistance.” https://www.nhfloan.org/programs.html
5. PNC.com. “FHA Loans from PNC Bank.” https://www.pnc.com/en/personal-banking/borrowing/home-lending/mortgage-loans/FHA-Loan.html
6. BankofAmerica.com. Saving to Buy a Home? Here’s How to Find Help.” https://promotions.bankofamerica.com/homeloans/downpaymentcenter?subCampCode=78905
7. Wellsfargo.com. “Get help with your down payment and closing costs.” https://www.wellsfargo.com/mortgage/down-payment-help/
8. RocketMortgage.com. “FHA Loans: Requirements, Loan Limits And Rates.” https://www.rocketmortgage.com/learn/fha-loans
9. VA.gov. “Eligibility for VA home loan programs.” https://www.va.gov/housing-assistance/home-loans/eligibility/
10. RocketMortgage.com. “What Is the Minimum VA Loan Credit Score For A Home Purchase Or Refinance?” https://www.rocketmortgage.com/learn/va-loan-credit-score
11. Fairway.com. “Buyer’s Guide to USDA Loan Credit Score Requirements.” https://www.fairway.com/articles/buyers-guide-to-usda-loan-credit-score-requirements
12. FreddieMac.com. “Your Guide to the Home Possible® Mortgage.” https://sf.freddiemac.com/working-with-us/affordable-lending/guide-to-home-possible-mortgage?gad_source=1&gclid=Cj0KCQjw9vqyBhCKARIsAIIcLMEEyXIh8qkdcYXSwLKZq7Jr2tNdRJ_r9-RNZYKuN-3U3WXDEBXAbYoaAr00EALw_wcB&gclsrc=aw.ds
13. FreddieMac.com. “HomeOne®.” https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/home-one
14. SingleFamily.FannieMae.com. “HomeReady Mortgage.” https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/homeready-mortgage
15. SingleFamily.FannieMae.com. “HomeReady Loans: New $2,500 in Down Payment Assistance.” https://singlefamily.fanniemae.com/media/37851/display
16. Bankrate.com. “Survey: More than half of aspiring homeowners say cost of living, low income hold them back.” https://www.bankrate.com/mortgages/down-payment-survey/#key-takeaways
17. HUD.gov. “Individual Development Accounts: A Vehicle for Low-Income Asset Building and Homeownership.” https://www.huduser.gov/portal/periodicals/em/fall12/highlight2.html

About the author

Michelle Lambright Black is a nationally recognized credit expert with two decades of experience. She is the founder of CreditWriter.com, an online credit education resource and community that helps busy moms learn how to build good credit and a strong financial plan that they can leverage to their advantage. Michelle's work has been published thousands of times by FICO, Experian, Forbes, Bankrate, MarketWatch, Parents, U.S. News & World Report, and many other outlets. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).

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