What are First Time Home Buyer Grants?

First time home buyer grants are different from loans because they never have to be repaid. These grants are issued at the federal, state or local level to encourage and assist people buying their first home under certain circumstances. The grants generally go to those people who are purchasing a home in a less desirable or transitional area. However, they may be extended to a wide variety of borrowers who would like a little boost to assist in the cost of purchasing.

First Time Homebuyer Grants Are Similar to Gifts

These grants are basically monetary gifts extended to you, the borrower, in return for your willingness to stimulate the economy through a home purchase. You never have to repay these grants, whether you receive them through local or federal organizations. Unlike tax credits, which only allow you to deduct certain amounts from your taxable income, grants are actual cash handed to you at the beginning of your home loan process to help pay fees.

First Time Home Buyer Grants Are Small

The fees your grants will pay are only a small percentage of the total cost you will incur while originating a mortgage. The grants typically do not actually go toward the mortgage payments. Instead, they are generally used to assist with down payment requirements, closing costs and origination fees. Many people neglect to consider the expense of closing costs and origination fees when they determine how much cash they have available to secure a mortgage. You should factor in at least 3% of the cost of your mortgage to head toward closing costs and fees. This means you would actually need to have 13% of a home's value to place 10% down. A grant can relieve some of these early requirements.

First Time Homebuyer Grants Require Applications

You will need to separately apply for a grant with the organization you will be hoping to receive the funds for. A grant application is different from a mortgage application. You do not need to prove any ability to repay since the funds will not need to be paid back. Instead, you will have to show the funds will be put to good use. This usually means you should show you have a need for the grant. You should also show you are putting the money into an economy that will receive a tremendous boost through your home purchase. Again, people buying in depressed or transitional areas can receive the best opportunity at grants.

First Time Homebuyer Grants Require Dedication

You need to be dedicated to achieving the funding if you plan on applying for a first time home buyer grant. This is largely because you will have to spend additional time in the application and funding process than you would if you were simply taking a loan. In fact, certain first time home buyer grants require you to attend classes in order to be able to move forward with the funding phase. Ultimately, the grantor wants to see you will put the funds to good use and create a sustainable household.