What you need to know about government funding for a new home:
- The federal government does not give housing grants directly to individuals. The funds are given to states and certain municipalities, who in turn, distribute the funds to the mortgage closing agent or attorney handling the close of sale.
- No grant will cover 100%. There is no such thing as a free house. Instead, a grant covers the down payment (and sometimes closing costs, so you still need to get a loan for the rest of the price of the home.
- The government will not give a grant to anyone who isn’t using it toward buying a home; therefore, you must qualify for a mortgage (often an FHA loan) to receive the grant.
- To apply for a grant, you go through your local mortgage broker or mortgage lender. Your loan officer will get you qualified for the loan and the grant at the same time.
- Federal grants for home buying require that you attend a homebuyer’s class. The classes are usually available online and your loan officer will give you the details on how to access it.
- Many grants are not actual grants (not free money with no payback), but are down payment assistance programs. (DPA). The down payment is provided for you, but when you sell the property or refinance the loan, you must pay it back. The best DPA programs don’t charge any interest on the money, so you pay back the same amount you received — which can be done with the proceeds from the sale.
- A down payment provided by a a DPA program shows up on your credit report and on title as a loan with no monthly payment.
INCOME QUALIFICATIONS FOR GRANTS AND DOWN PAYMENT ASSISTANCE
The tricky thing about qualifying for a grant or DPA is that you can’t make too much or too little money. If your income is above the median income for your area, then it’s probably too high. But you must have the income needed to qualify for the main mortgage.
OTHER QUALIFICATIONS NEEDED
You must be employed for two years (or have college plus employment for two years). If you’re self-employed, it must be for two years. If you have a part-time side gig, you must have had it for two years and declare the income on your tax returns. Under-the-table cash earnings don’t count.
Your credit must qualify also. Often that means a middle credit score that is 620, with the lowest score of the three ignored.
What Happened to the $25,000 First-Time Homebuyer Grant?
The Downpayment for Equity Act of 2021, commonly called “The $25,000 First-Time Homebuyer Grant” was introduced as a bill in April 2021. It received a ton of publicity with articles by pretty much every financial writer.
However, the bill never made it out of Committee for voting by Congress. From what I can tell, the bill was not fully developed. It included nothing about how the federal government would get the funds to the individual states to pass on to mortgage closers. You can’t eat a pie if the ingredients are not stirred together and baked, right? So then when 2023 arrived, the bill automatically expired.
A new bill for a grant will need to be written and introduced, then passed into law. Hopefully, next time, it will be better written so that it doesn’t stall forever and then die.
To find out what specific programs are available in your own state, you can reach out to a local mortgage broker.
If you want to become a homeowner but you can tell from the information above that you don’t qualify, don’t give up. Make a plan for getting your credit and income on track, then stay true to your plan. If you could benefit from a big dose of inspiration and a lot of great financial tips, then I recommend Credit Repair Mindset, available on Amazon in both paperback and Kindle.
