There are many benefits to being a homeowner. For first-time homebuyers, there are additional incentives to make your home purchase less stressful and more affordable. These come in the form of first-time homebuyer grants that provide assistance for closing costs and down payments. In this blog, we will discuss how to use these grants to ensure you make the most of your first purchase. At TCU, “Knowledge is Power” and we are focused on providing the information about these grants so you can plan better and borrow better.
First-time Homebuyer Grants
First-time homebuyer grants provide monetary assistance to help with the down payment on a home purchase and closing costs. These grants are based on financial need. The grant does not have to be repaid if used for the purchase of your first home. While there are some grants available to previous homeowners, we will focus only on the ones for first-time homebuyers.
Qualifications for a First-time Homebuyer Grant
To qualify for a grant, applicants much meet certain requirements. According to Bankrate.com, these include:
- Income Limits: Applicants must meet income requirements that classify them as low- to moderate-income borrowers. That means the household must earn 80% or less than the median income to qualify. Income limits may vary based on the number of people in the household.
- Home Price Limits: A grant may have a cap on the home prices that are eligible for the program. This will depend on the state and local housing market.
- Contributions: Grants may require the first-time homebuyer to contribute some money to the purchase of the home. For example, buyers may need to contribute at least 1% of the purchase price or $1,000, whichever is greater.
- Residential Status: Some grants may require the applicant to use the property as their primary residence and not as a second home.
- Homebuyer Education: A grant may require homebuyer education courses be taken first before the funds are released.
How to Apply for a Grant
First-time homebuyers must meet minimum credit score requirements and other qualifications to become eligible for a grant. Applicants must show income and asset documentation, two months’ worth of pay stubs and verification of employment.
You can research grants before you are ready to buy a home or at the time you apply for a mortgage. The best advice is to explore various lenders so you will know the eligibility requirements of their grants before you begin the homebuying process. You can also ask your preferred lender about any first-time homebuyer grants.
Additional Assistance for First-time Homebuyers
Along with these grants, there are additional down payment assistance (DPA) programs to consider. They vary by state and local agencies. Here are some of the more common DPA programs:
- DPA Second Mortgage: This kind of assistance lets you receive two loans: one for your 30-year mortgage and the other for your down payment or closing costs. This program is for buyers who do not have enough funds for the down payment or closing costs. You will begin paying back both loans over time as determined by the lender.
- DPA Deferred Payment Loans: With this loan, you can defer the payment on any DPA loan. Some programs even let you defer payment until you sell your home, refinance your loan or pay off the mortgage in full. Such programs do not accrue interest over time, which means you only pay back what you originally borrowed for the loan.
- DPA Forgivable Loans: These loans can be forgiven if you live in the home for a pre-determined period. If you move before you reach the required time, you must pay back the loan. Once you have met this requirement, your loan is discharged.
- Individual Development Accounts (IDAs): Unlike the other assistance programs, this one adds funds to a savings account dedicated to buying a first home. This type of program is offered by some public housing organizations and private nonprofits. They match dollar for dollar what is deposited into the account, which is used to pay for the down payment and/or closing costs.
Ways TCU Can Help
Travis Credit Union is focused on providing information and resources you will need to buy or refinance a home. Our knowledgeable mortgage loan consultants will work with you to find the right home loan program that fits your unique financial situation.
You can also check your offers at TCU without any impact to your credit score using our pre-qualification tool. Learn more about how Travis is focused on your financial wellness by visiting Traviscu.org.