Everyone in America (who doesn’t own a house already) dreams about getting their own house. In fact, according to a study by Census Bureau, 63 percent of American households are homeowners. However, one of the biggest challenges that most prospective homeowners (particularly for middle- and low-income households) face is coming up with a down payment. When you factor in all your other commitments such as the high cost of rent, utilities, car ownership, health insurance, education, and groceries, there is often very little left in the budget to accommodate the down payment.

If you are looking to buy a home for the first time, you can apply for a home buyer’s grant to help you with the costs, which will help avoid disappointment if you cannot afford the down payment and closing costs of commercial loans.

How first-time homeowner grants work

First time homeowner grants work in conjunction with low-down-payment mortgages. For instance, first time mortgages usually require that you make a down payment of 3.5 percent of the amount of money needed to purchase the house. There are some conventional mortgage programs that allow you to buy a home with a down payment of just 3 percent of the purchase price.

First-time homeowner grants exist in order to take care of the down payments that the individual will normally be required to make. Your grant alongside your first mortgage will allow you to purchase your first home without needing to put in a down payment.

Even though these programs are intended for first time home buyers, some however define first time home buyers as someone who has not owned a house within the last three years. In addition, the grants are available for the purchase of owner-occupied homes only. That means that you cannot use them for the purchase of a second home or investment property.

First time home buyers grants cannot be used to purchase all types of houses because they have limits. For instance, the actual dollar amount of the grant is typically capped at a certain amount. If the limit is $9,000 for example, the maximum purchase price of a property using a 97 percent first mortgage would be $300,000 ($300,000 x .03 = $9,000).

There are almost always income limits as well. Those limits can vary from county to county, and are usually based on the median household income in the area. For instance, grant availability may only apply to households whose annual incomes are below the median. Others may go with a higher number, such as 150 percent of the median.

In addition, because you are participating in a first time home buyer grant program, you may be mandated to take a home-buyer education course of some sort. The course can take the form of actually attending a session at a remote location, or completing an online course from the comfort of your house.

More often than not, the grants are actually loans. Usually, you will be required to make a small payment every month, but the balance of the grant may be forgiven if you have made payments consistently and on time for say, five or 10 years. Since the interest rate on the program is subsidized, it will typically be well below market rates.

How to Qualify and Get a First Time Home Buyers Grant

  1. Contact Your Local Government

If you want to get a first time home buyer grant, you should first contact your city or town office to get details concerning the various home buying programs. The Department of Housing and Urban Development can provide you with a list of various home buying programs that are available in your state. For instance, in California you can apply for home buyer grants with the California Housing Finance Authority, with the U.S. Department of Agriculture Rural Housing or the California Department of Housing and Community Development for information on more than 200 housing programs.

2. Make Sure You Qualify

The next step would be to check if you are qualified for those programs. The income and purchase limit for First-time home buyer grants are different and vary from state to state. For instance, the California Housing and Finance Agency income limits for the California Homebuyer’s Down payment Assistance Program in San Francisco ranges from $83,000 to $157,000, depending on the number of people in the household.

Each mortgage type, whether it is conventional or FHA, will have certain guidelines that you must meet. The requirements will be similar to what they would be if you were applying for a mortgage but not participating in a grant program. But in addition to the loan requirements of the first mortgage, the grant program may have additional requirements. Exactly what these will be will depend upon the specific grant that you are participating in. Generally speaking however, if you can qualify for the first mortgage, you should be good to go with the grant as well.

3. Find an Approved Lender

When you find a program that you qualify for, you will then have to find an approved lender. Local home buying programs use approved lenders to offer loan grants. A list containing approved lenders can be sourced from your local housing agency. For example, the California Housing Finance Agency provides a list of CalHFA-approved lenders that first-time buyers can contact to apply for a loan grant. You should note that not all lenders participate in all grant programs. In fact some lenders do not work with any of them at all

4. Complete the paper work

Mortgage applications themselves require a significant amount of paperwork, as well as supporting documentation. Be aware that taking advantage of a grant program is likely to require additional paperwork. Exactly how much, and what the requirements will be, will depend upon the individual program. It’s important that you are on board with this process. You’ll need to complete all paperwork fully and accurately. You will also need to supply any required supporting documentation promptly. You will then be required to fill the application form while providing answers to questions about your income, employment history, debts and other personal and financial information. Depending on the type of grant you are applying for, your lender may require a credit report to check your credit history and previous reliability as a borrower. It is imperative that you should supply accurate information because verification procedures are in place to weed out applicants with inaccurate details.

Finding grant programs that are available in your area

Even though you may not know it, there are a lot of grants available in your area. The best way to get information on program availability is to contact your local government office, including your state, county, and municipality. They are often the sponsors of the grant programs, and can also recommend private source grant programs as well.

Still another source are mortgage lenders themselves. Since they typically work with various grant programs in the area, they will be aware of those that are most popular. The US Department of Housing and Urban Development (HUD) can help you to locate down payment assistance programs provided by non-profit agencies in your state.

Another good source for grant programs is the Home buyer programs by state page from the mortgage resource website HSH.com. It provides a listing of the hundreds of programs that are available in each of the 50 states.

It is good to note that not all grant programs are available all the time. For example, local government grant programs are usually financed by bond issues. If the bond issue is for $10 million statewide, the grant program will end when the funds from that bond issue have been exhausted. If that happens, you will have to wait until there is another bond issuance, and funds have been replenished. You can check with the grant sponsors to find out when that will happen.

In conclusion, if you would like to buy a home of your own but you are finding it difficult to cough up the down payment, you can look into the many grant program options available in your state.