Details for Federal First-Time Home Grants

Federal first-time home grants are issued by states and funded by the federal government. Individual states will determine how to distribute the funds to qualified buyers. It is common for the state to distribute the funds to municipalities first, meaning you may actual get your federal grant from your local housing office. Local programs will have a large impact on your grant, but there are some items that are true across the board.

Grants are not Repaid

The biggest advantage of a grant is you never have to repay the proceeds. Unlike loans, these grants are completely free money for you if you qualify. The HUD and FSA are the two main federal housing organizations for residential purchases. These two groups have a number of options for loan guarantees for your home to make a mortgage less expensive. Guarantees are not grants, however, because they are simply assurance on a loan you have through a private mortgage company. The FHA will not actually be providing you with any funding, and you will have to repay the private lender, plus interest. Grants require no repayment and no interest.

Grants are Limited

First-time home buying grants are very limited in scope. First, you have to qualify for a mortgage to qualify for a grant. While the grants are aimed at low-income buyers, those buyer must be creditworthy enough to secure a mortgage loan. Second, most grants make up only a portion of the home's cost. They are typically about 10% or less of the home's actual value. This may cover closing costs in some cases but not much else. Do not expect to receive a grant for the purchase of your entire home or even your down payment.

HUD Counseling is Mandatory

The government wants to assure its investment in you will pay off. For this reason, you will be required to attend a certified HUD counseling course in home ownership. There, you will learn about budgeting, mortgages and other financial aspects of owning a home. You will also learn about home improvements and ways to manage your house as an asset. Failure to complete one of these courses means you will not be able to get the grant. The courses, though, will be local to your area and relatively short. Ultimately, you will benefit from the knowledge you receive in the course as you move forward as a new home owner.

Grant Example

Perhaps the most common example of a federal housing grant is the American Dream Down payment Initiative (ADDI). This grant goes toward the down payment of a home for qualifying individuals. The grant pays up to $10,000 or 6% of the home's value, whichever is greater. The funding may also be distributed to closing costs or minor rehabilitation projects. If you are looking to buy a home and place 10% down, then this grant could allow you to make a down payment on a $100,000 home completely for free. Similarly, if you are purchasing a $300,000 home, the 6% of funds would only need to be supplemented with $12,000 of your own dollars.

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