Buying a home can be crazy expensive, and for most first-time buyers, the hardest part is saving up a sizable down payment. You've no doubt heard that the traditional down payment should be 20% of the purchase price — any less, and you'll likely have to pay private mortgage insurance (PMI) or get stuck with a higher long-term interest rate. And who's got 20% of, say, $300,000 just kicking around in their bank account?
However, that 20% figure isn't set in stone. In 2016, the average down payment was actually 11%, according to the National Association of Realtors. Among buyers under 35, it was just 8%.
Still, even 10% of a home in expensive metro areas like Los Angeles or New York can be an enormous sum of money, at over $40,000. In San Jose, Calif., a 10% down payment on a median-priced house would be $118,340 — enough to buy the average single-family home outright in Erie, Pa. or Wichita Falls, Texas.
In the absence of a trust fund or fairy godmother, a first-time homebuyer grant might help you get over the hump with your savings.
These grants most commonly come in the form of down payment assistance. They're typically issued at the state or local level (or both), so check with your state's housing finance authority, your own city or town government, and other nonprofits in your area.
Every down payment assistance program will have have its own unique rules and eligibility requirements, and some of them can be fairly quirky or restrictive. Most are only available to first-time homebuyers who meet certain income limits and fulfill other requirements, like taking a homebuyer class or using a first-time homebuyer loan. Most require that you kick in at least a little something, like 1% of the purchase price or a ceremonial $500. And many of these grants are actually in the form of a forgivable loan — a zero-interest debt that is wiped clean once you live in the home for a certain length of time.
For example, the city of Boston offers forgivable down payment loans to residents worth up to 3% of the home's price (and up to 5% for three-family homes). The "loan" accrues no interest, and payments are deferred for 10 years — at which point, if you're still living in the home, it's forgiven. (If you sell the place before then, you'll have to pay it back.)
In neighboring Cambridge, Mass., eligible first-time buyers can receive 6% of their home's purchase price, up to $10,000, in forgivable down payment assistance. Twenty percent of that "loan" is forgiven each year over a five-year period, provided the buyer uses the home as their only residence.
Cambridge offers another, more radical form of financial assistance, too. In the more lucrative — but also more restrictive — HomeBridge program, income-eligible first-time buyers can receive a whopping 40% to 50% of a home's sale price (!). However, there's a big catch: In exchange, they must enter an affordable housing agreement (called a covenant, actually, which sounds scarier) with pretty dramatic restrictions on how much equity they can accrue and how they're able to use, rent, or resell the property in the future.
Some first-time homebuyer grants appear to merely move money around: For example, in exchange for "free" upfront cash to put toward your down payment, you might end up with a slightly higher interest rate on your long-term loan.
That's not necessarily a bad thing, but make sure you know what you're getting into and whether it makes sense for your financial situation. While forgivable loans are a pretty sweet deal, for example, they can still hinder your ability to take out a home equity loan until after they're entirely paid off or forgiven, which can take years.
Anyway, the long and short of it is: There are a lot of homebuyer assistance programs out there, and while they are generally on the up and up, you'll need to jump through quite a few hoops to get a grant, and you should make sure you understand the fine print of how the program works.
Here are a few of the biggest state- and city-specific grant programs, which are often administered by the same organizations who offer first-time homebuyer loans and education:
The Golden State Finance Authority's GSFA Platinum program offers homebuyers (and not just first-timers) grants worth up to 5% of their mortgage toward a down payment or closing costs. The grants don't put a lien on your property and don't need to be repaid. Participants must meet income guidelines and have a FICO credit score of 640 or better, among other requirements.
Illinois and Wisconsin
The Federal Home Loan Bank of Chicago has a forgivable grant program called Downpayment Plus. Income-eligible homebuyers can qualify for a matching grant that's worth three times what they contribute to the purchase: the minimum buyer's contribution is $1,000, which will get you a $3,000 grant; the maximum grant amount is $6,000. Completing a first-time homebuyer course is required, and the property must be located in Illinois or Wisconsin; the grant is gradually forgiven over the course of five years (if you move early, you'll owe the prorated balance).
New York City
New York's HomeFirst program offers first-time homebuyers in all five boroughs forgivable loans of to $25,000 if they meet income limits and other criteria. The property needs to pass a quality inspection, and you need to stay in the home for a minimum of 10 to 15 years.
New York State
The State of New York Mortgage Agency offers a Down Payment Assistance Loan worth 3% of your home's purchase price, up to $15,000. It's the kind of "loan" you wish everyone would offer: There's zero interest, no monthly payments, and it's completely forgiven after 10 years. This is a case where you're basically shifting your financial burden, though: Participating raises your interest rate by 0.375 point. If you move before the 10 years are up, you'll have to repay a prorated portion of the loan.
It's not as juicy as some of the down payment assistance programs, but Philly's Settlement Assistance Grant, which offers income-eligible first-time buyers a free home buying course and $500 toward closing costs, is a legitimate no-strings-attached giveaway. A 2-person household must earn less than $51,400 a year to qualify.
The Texas State Affordable Housing Corporation offers down payment assistance grants of up to 5% of your mortgage amount, which never has to be repaid. It's not just for first-time buyers, and unlike most other programs, you don't have to stay in the home for any set period of time. The program is available to "Texas Heroes" — such as veterans, teachers, and first responders, among others — or low- and moderate-income state residents. You can take their eligibility quiz to see if you qualify.
For first-time homebuyers earning 80% or less of the local median income, Virginia's Department of Housing and Community Development offers generous "deferred conditional grants" worth up to 10% of a home's purchase price (and up to 20% in certain high-priced or chronically distressed areas), plus up to $2,500 for closing costs. Eligible homebuyers must apply through a participating local lender, complete a home buying course, and agree to stay in the home for five years (for loans up to $14,999), 10 years ($15,000 to $40,000) or 15 years ($40,000 or more). Yes, you read that right: Virginia might give you a cool 40 grand toward your down payment. But if you skip town early, you must repay the amount in full.
There are many, many other programs out there, in places large and small, so check your local government agencies and nonprofits to see what type of down payment assistance grants may be available in your area. Some areas, like Seattle and Michigan, don't offer grants, but do have low- or no-interest down payment loans that only have to be paid back once you pay off or sell the house.
If you know of a credible program in your city or state, please share it in the comments below.