While buying a home for the first time can be an exciting venture, it is also an expensive one. Thus, the expenses of a home can deter low-income families and individuals from striving towards the purchase of their first home.
In addition to income and down payment requirements, lenders require prospective homebuyers to meet credit score-related eligibility requirements in order to qualify for a mortgage. However, it is important to know that even if you do not qualify for a traditional mortgage, you may still qualify for a first-time homebuyer federal grant or loan program.
By learning more about the federal housing grants and loan programs that may be available to you, you will learn whether or not the purchase of a home may be within your reach as well as what to expect when receiving benefits from a grant or loan program.
What are first-time homebuyer grants?
Several federal programs are administered by the Department of Housing and Urban Development (HUD) in an effort to assist first-time homebuyers with the purchase of a home. While these federal programs do require prospective homebuyers to meet eligibility requirements, including income, credit score and down payment requirements, these qualifications are often less stringent than that of a traditional mortgage.
What type of federal assistance is available to aid first-time homebuyers?
There are several ways that first-time homebuyers can receive assistance on the purchase of a home from the federal government. For starters, the HUD offers homes for sale that are generally below their market value. Additionally, the Federal Housing Administration, a subsidiary of the HUD, offers a loan program that insures the mortgage of eligible first-time homebuyers in order to help these individuals qualify for a mortgage.
The Internal Revenue Service (IRS) offers certain tax breaks to first-time homebuyers for a set period after the purchase of a home. This can help you save more money over a few years following your purchase. Finally, you may also qualify for additional assistance through local and state programs.
About The HUD’s First-Time Homeownership Voucher Program
The Homeownership Voucher Program provides very low-income families with the opportunity to become first-time homeowners through financial assistance that can be used towards the purchase of a home. This HUD program provides qualifying participants with monthly financial assistance to be used towards some of the cost of mortgage payments and other applicable household expenses.
To be considered eligible for the Homeownership Voucher Program, you must:
- Meet the HUD’s definition of a first-time homebuyer.
- Meet income guidelines, which vary by county and metropolitan area.
- Have an adult within the household that has held a full-time job for at least one year.
- Complete an HUD-approved homeownership and counseling program.
To determine your eligibility and apply for the Homeownership Voucher Program, you must contact your local Public Housing Agency (PHA).
Understanding the Federal Housing Administration (FHA) Loan Programs
If you would like to purchase a home but you may not meet traditional mortgage qualifications, it is worth taking the time to learn more about the FHA loan program. An FHA loan is a type of loan that you can obtain from a mortgage broker or lender that is insured by the federal government.
This insurance reduces or eliminates the risk to the lender, allowing the lender to accept lower credit scores, income and down payment amounts as well as offer better loan terms. For example, an FHA loan can reduce your down payment requirements to as low as 3.5 percent of the overall purchase price of the home.
If you are interested in applying for an FHA loan for the purchase of your first home, you must contact an FHA-approved lender. The lender will be able to determine whether or not you are eligible for the FHA loan program as well as provide you with terms for any loan you may be potentially offered under the program.
Learn How to Purchase an HUD Property
An HUD home is a property that is sold by the Department of Housing and Urban Development following a foreclosure on an FHA-insured mortgage. These properties are commonly sold below market value for a quick sale to recoup the loss the experienced during the foreclosure.
HUD homes offer first-time buyers the opportunity to purchase a home below market value. While these homes are sold “as is”, many properties are in pristine condition. However, the HUD recommends that every potential buyer has an inspection of the home completed by a licensed home inspector before making an offer on a property.
While the HUD does not provide mortgages directly to buyers, a property can be purchased with any other type of mortgage, cash or other form of financing. Federal programs, including FHA loans, can also be used towards the purchase of a HUD home.
You can find the HUD properties within your community by checking the HUD home store. This online database provides the most up-to-date information on the available homes within a community. Superior search functions allow you to narrow down your search of homes by filters such as:
- ZIP code, city and state.
- Bedroom and bathroom amounts.
- The type of home.
- The price range of the home.
By utilizing these search filters, you can more quickly find a home that may be perfect for you. The home’s listings will also include additional information about the property and pictures of the property, where available.
About The Good Neighbor Next Door Program
The U.S. Department of Housing and Urban Development provides substantial discounts to qualifying homebuyers who are interested in the purchase of an HUD home. HUD homes are properties that were previously foreclosed upon and had an FHA-insured loan. If an HUD home receives more than one offer, the HUD holds a lottery in order to determine which applicant may purchase the home.
While the HUD already prices many of these homes below their market value in order to quickly recover from the loss of a foreclosure, certain applicants can qualify for as much as 50 percent off the purchase price of a home through the Good Neighbor Next Door Program. To be eligible for this program, you must:
- Be a law enforcement officer, firefighter, emergency medical technician (EMT) or a teacher (K-12).
- Agree to reside on the property as your sole residence for a minimum of 36 months.
To apply for the Good Neighbor Next Door Program, you must contact an HUD-approved lender that is authorized in the sale of HUD homes.
Discover Additional Mortgage Assistance and Loans for Veterans
If you are a United States veteran who is interested in purchasing a home for the first time, you may have additional resources, loans and assistance programs available to you. The U.S. Department of Veterans Affairs (VA) offers several loan programs that can assist you in the purchase or construction of a home and refinancing an existing home, often for a lower and more affordable interest rate.
VA loan eligibility requirements vary by loan program. However, these qualifications are generally related to service time, discharge status, credit score and income-related requirements. Similarly to FHA loans, credit score and income eligibility requirements are often far lower than traditional loans. Additionally, most VA loans do not require homebuyers to provide a down payment.
If you are interested in purchasing a home with a VA loan, you will need to apply for a Certificate of Eligibility (CoE), which can be done online, by visiting your local VA office or by visiting a VA-approved lender. If you are a veteran that has a service-connected disability, you may qualify for additional assistance through the Specific Adapted Housing (SHA) grant or the Special Housing Adaptation (SHA) grant.
The SAH grant program offers veterans that have sustained certain service-connected disabilities the opportunity to live independently. The SHA grant can assist qualifying veterans with the purchase of a home or upgrades to an existing home to accommodate a disability.
In order to be considered eligible for either of these grant programs, you must meet qualifications that are based upon your service, service-related disability and discharge status. You can apply for either of these grant programs by contacting your local Department of Veteran Affairs.