Did you know that the First Home Buyer Grant and loans are available to help you become a homeowner? Each type of financial assistance plays a unique role in making homeownership achievable.
The First Home Buyer Grant is a gift of cash that helps cover upfront costs like your down payment, while a loan involves a larger amount you repay over time. Together, they make it possible to buy your dream home without needing the full sale price upfront.
Grants help settle part of the down payment and loans cover most of a home’s sale price. So, for a $200,000 house, grants help you come up with a down payment of at least $6,000. Loans pay the remaining balance of $144,000 upfront. So, you must first pay a little to buy your first home.
Grants and loans help you achieve your dream of owning a home. Who would have thought it’s possible to buy a house without saving for its total sale price first? If you want to know how to apply for both, read the guide below.
On to getting approved for grants and loans and buying your dream home!
Express Takeaways
- Grants are donations that do not need repayment, while loans involve money you borrow and pay back with interest.
- In a residential mortgage, grants are small amounts of money you can use to pay the initial fees. While loans involve significant funds you borrow to pay the remaining home price after you settle the down payment.
- Anyone may apply for grants and loans if they meet the requirements.
First Home Buyer Grant vs Loan: Key Differences?
A grant is a small amount of money entities donate without asking for anything. Grants in a residential mortgage help you pay the upfront costs to close the loan.
A loan is a large sum of money that financial institutions lend you. You must repay it within an agreed-upon term, usually with interest. There are many types of loans, including mortgages.
Who Qualifies for Grants and Loans?
Anyone dreaming of owning a home may apply for grants and loans. As long as you meet the requirements of an entity, you can get that financial aid. But, since grants and loans are different, qualifications also vary.
What is a Grant?
The following entities may give grants to qualified individuals. You may use the grants to pay for the down payment, closing costs, and reserves in a mortgage loan:
- City, town, village, borough, state, county, or federal government
- A housing finance agency
- A nonprofit organization
- A regional Federal Home Loan Bank
- An employer
- An Indian tribe on the most current list released by the Secretary of the Interior
- A lender
Proper documentation of grants and a letter awarding them to the borrower are needed. The document must state that repayment is not expected. It must also include the terms, conditions, details of the transfer, and receipt. Different entities award grants to qualified homebuyers.
First Home Buyer Grant Programs by Government Agencies
Federal and local governments offer First Home Buyer Grants to reduce initial costs for eligible applicants. You may contact your local government to ask about the process of applying for a grant.
Housing Finance Agency
Some state housing finance agencies ask you to attend a homebuyer seminar first. Afterward, you may talk to a loan officer who will assess your situation and find the right program.
Non-Profit Organizations Offering First Home Buyer Grants
The government identifies the non-profit organizations it approves of giving grants to. They have set limitations, requirements, and state coverage. Visit the website of the U.S. Department of Housing and Urban Development to learn more.
Regional Federal Home Loan Bank
Federal home loan banks have a Homeownership Set-Aside Program that gives grants to homebuyers. The grants can pay down payment, closing costs, or counseling services. One is FHLBank Atlanta which provides up to $7,500 to qualified first-time homebuyers. Their website says their phone lines are open for further questions.
Employer
Fannie Mae, a government-sponsored enterprise, allows grants through employer assistance. But, they may ask you to follow their most minor contribution requirements.
| LTV, CLTV, or HCLTV Ratio | Number of units | Need |
| 80% or less | One- to four-unit principal house | 0 |
| Greater than 80% | One-unit principal house | 0 |
| Two- to four-unit principal house | 5% contribution from the borrower’s funds |
An employer must prove they provide the same grant to all their employees.
Indian Tribe
The government has a Housing Improvement Program (HIP) for Indian communities. It provides grants for repair, renovation, replacement, and new housing. You must meet the following requirements to qualify for it.
- A member of a federally recognized American Indian Tribe or an Alaska Native
- You are living in a tribal service area
- Your income does not exceed 150% of the poverty guidelines
- Your current housing is substandard
- You have no other financial resources for housing
- You have not applied for housing assistance from a government-sponsored housing program
If you qualify, you may apply for HIP assistance and send it to your local Tribal servicing office.
Lender
Fannie Mae allows a Lender-funded Grant if you meet the following:
| LTV, CLTV, or HCLTV Ratio | Number of units | Need |
| One-unit principal house | 3% contribution from the borrower’s funds | |
| 80% or less | Two- to four-unit principal house | 3% contribution from the borrower’s funds |
| Greater than 80% | 5% contribution from the borrower’s funds |
Fannie Mae requires a loan for one of their products, the HomeReady Mortgage.
What is a Loan?
The following financial institutions may lend you money to buy a house:
- Commercial, savings, or chartered banks
- Credit Unions
- Savings institutions
- Mortgage company or banker
- Online mortgage lenders
These mortgage lenders review your financial situation before they approve a loan.
Mortgage Loan Requirements for First Home Buyers?
Most lenders consider the following things:
- Income
- Down payment or equity
- Credit history and credit score
- Debt-to-income ratio
- Savings
- The property you plan to buy
Not all lenders follow the same rule for assessing the above factors. However, many of them observe common mortgage industry standards.
Income
Lenders check if your monthly mortgage payments are only 25% to 36% of your gross income.
Down Payment or Equity
Depending on the mortgage type, you may pay 0% to 20% of the home’s sale price for the down payment. If you want to know how to pay as little down payment as possible, visit Home Buyer Wallet. It has information on the programs available that will help you pay for it.
As for equity, if the home’s value decreases, you may owe more in your new mortgage. This impacts the loan-to-ratio value (LTV) and may cause a lender to deny you refinancing. An updated appraisal may help determine if the LTV ratio satisfies a lender.
Credit History and Score
Lenders review your credit history for the following reasons:
- Decide what interest rate to offer you
- Determine if you are on time in paying an existing loan
- Check if you need insurance
Credit scores are in the range of 300-850. Lenders usually approve those who have higher scores.
Debt-to-income Ratio
It is the sum of your monthly debt payments divided by your gross monthly income. It is before taxes and deductions. Each lender has their own DTI limits. To give you an idea, Fannie Mae-backed mortgage loans need a 36% to 45% debt-to-income ratio. You also need to qualify for their credit score and reserves requirements.
Savings
Some lenders ask for proof of savings. It is their way of checking if you can still pay monthly mortgage payments after losing your primary source of income. If lenders need it, they may ask for up to 6 months of savings for reserves.
Property
Most lenders approve mortgage loan applications for the following types of residential properties:
- Single-family homes
- Manufactured homes
- Condominiums
- Two to four units of properties
- Land
Lenders approve loans to buy, repair, or construct the above property types.
How Can You Apply for a Mortgage Loan?
A lender may ask for the following documents to review your financial situation:
- W-2s
- Pay stubs
- Bank statements of all financial accounts including investments
- Tax returns
- Profit/loss statement if self-employed
- A copy of the Buying Agreement you signed with the home’s seller.
The mortgage article involves an in-depth discussion of the whole mortgage process.
What is the Process of Repaying a Mortgage Loan?
A lender collects monthly payments through their representative or a mortgage servicer. The costs consist of the principal, interest, taxes, and insurance. You pay the monthly mortgage payments until the end of the term, which is either 15 or 30 years.
Where Can You Apply for a Mortgage Loan?
Financial institutions offer loans to all mortgage types, but some only work with specific ones. Identifying your ideal type is essential to knowing where to apply for a mortgage loan.
For instance, government-backed mortgage types only provide loans through their approved lenders. Private companies also offer mortgage loans for a specific group.
In a residential mortgage, grants and loans are financial resources that help you own a home. Grants are small donations that you can use to pay for the initial costs required in a mortgage. This type of loan allows you to borrow the remaining money you cannot afford to pay a home’s sale price upfront. Many entities give grants and approve loans to anyone who meets their qualifications. So, the costs of buying a house in cash will not be all on you. Start applying for grants and loans now and be a homeowner!
Article Sources
Homebuyer Wallet requires its writers to get information from original and reliable resources. Please see our editorial policy to learn more about our standards for producing factual information and content.
- Fannie Mae, “B3-4.3-06, Grants and Lender Contributions, https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-4-Asset-Assessment/Section-B3-4-3-Verification-of-Non-Depository-Assets/1032996811/B3-4-3-06-Grants-and-Lender-Contributions-12-14-2022.htm#:~:text=Borrowers%20of%20a%20loan%20secured,referred%20to%20as%20a%20grant.”
- Consumer Financial Protection Bureau, “What is a mortgage? https://www.consumerfinance.gov/ask-cfpb/what-is-a-mortgage-en-99/”
- Merriam-Webster, “Grant, https://www.merriam-webster.com/dictionary/grant”
- Merriam-Webster, “Loan, https://www.merriam-webster.com/dictionary/loan”
- Pinkowish, T. (2021). Residential Mortgage Lending: Principles and Practices, 7th Edition (eTextbook). (S. Glassmeyer, Ed.). Mbition Publishing. https://www.theceshop.com/real-estate-books
- U.S. Department of Housing and Urban Development, “RESOURCES FOR INDIVIDUALS, https://www.hud.gov/program_offices/administration/grants/grantssrc”
- National Council of State Housing Agencies, “Find a State Housing Finance Agency, https://www.ncsha.org/housing-help/”
- Federal Housing Finance Agency, “Affordable Housing Program, https://www.fhfa.gov/PolicyProgramsResearch/Programs/AffordableHousing/Pages/Affordable-Housing-Home-Loan-Banks.aspx”
- The Federal Deposit Insurance Corporation (FDIC), “Homeownership Set-Aside Specialized Programs, https://www.fdic.gov/resources/bankers/affordable-mortgage-lending-center/guide/part-3-docs/homeownership-set-aside-specialized-programs.pdf”
- FHLBank Atlanta, “HOMEOWNERSHIP SET-ASIDE PROGRAM, https://corp.fhlbatl.com/files/documents/ahp-homeownership-set-aside-program.pdf”
- Fannie Mae, “B3-4.3-08, Employer Assistance (09/29/2015), https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-4-Asset-Assessment/Section-B3-4-3-Verification-of-Non-Depository-Assets/1033003301/B3-4-3-08-Employer-Assistance-09-29-2015.htm”
- U.S. Department of the Interior Indian Affairs, “Housing Improvement Program, https://www.bia.gov/bia/ois/dhs/housing-improvement-program”
- Fannie Mae, “HomeReady Mortgage, https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/homeready-mortgage”
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- The Federal Deposit Insurance Corporation (FDIC), “Loans and Mortgages, https://www.fdic.gov/consumers/consumer/moneysmart/podcast/documents/borrowing-money-how-much-mortgage-can-i-afford.pdf”
- Consumer Financial Protection Bureau, “Determine your down payment, https://www.consumerfinance.gov/owning-a-home/prepare/determine-your-down-payment/#:~:text=In%20general%2C%20the%20higher%20your,5%20percent%20down%20or%20more.”
- The Federal Reserve Board, “A consumer’s guide to mortgage refinancing, https://www.federalreserve.gov/pubs/refinancings/#eligible”
- Consumer Financial Protection Bureau, “How does my credit score affect my ability to get a mortgage loan? https://www.consumerfinance.gov/ask-cfpb/how-does-my-credit-score-affect-my-ability-to-get-a-mortgage-loan-en-319/”
- Consumer Financial Protection Bureau, “What is a debt-to-income ratio? https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-en-1791/”
- Fannie Mae, “B3-6-02, Debt-to-Income Ratios (05/04/2022),
- Consumer Financial Protection Bureau, “Single-family residence exemption, https://www.consumerfinance.gov/rules-policy/regulations/1010/10/”
- Freddie Mac, “Home Possible, https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/home-possible”
- Fannie Mae, “B2-3-01, General Property Eligibility (06/01/2022),
- U. S. Department of Veterans Affairs, “VA 101: Home Loan Program Basics, https://www.benefits.va.gov/homeloans/documents/docs/va101_handout.pdf”
- Consumer Financial Protection Bureau, “Get a prequalification or preapproval letter, https://www.consumerfinance.gov/owning-a-home/explore/get-prequalification-or-preapproval-letter/#:~:text=A%20prequalification%20or%20preapproval%20letter%20is%20a%20document%20from%20a,not%20a%20guaranteed%20loan%20offer.”
- Bank of America, “How to apply for a mortgage
- Consumer Financial Protection Bureau, “What’s the difference between a mortgage lender and a servicer? https://www.consumerfinance.gov/ask-cfpb/whats-the-difference-between-a-mortgage-lender-and-a-servicer-en-198/”
Consumer Financial Protection Bureau, “What is PITI? https://www.consumerfinance.gov/ask-cfpb/what-is-piti-en-152/”
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