Becoming a homeowner is a major life goal for many Americans. But trying to save enough money for a down payment and closing costs on a home can be a challenge—especially when you consider the fact that the home prices have increased significantly in recent years.
According to the National Association of Realtors, the median home sale price was $389,400 in the first quarter of 2024. The figure represents a 5.0% increase compared to the previous year. And by April 2024, the median home sale price in the United States rose to $407,600.[1] [2]
Trying to come up with a 20% down payment on a conventional mortgage loan could feel like an unrealistic goal depending on your financial situation. Even a much smaller down payment of 3.5%—the amount you need to set aside for a down payment on most FHA loans—could be an obstacle to homeownership in many situations. And if you’re a first-time home buyer, saving for a down payment may feel even more out of reach.
On a positive note, there are first-time home buyers grants, incentive programs, and low-cost mortgages available that may be able to assist you. The guide below will help walk you through some of the solutions for first-time home buyers that could make homeownership more accessible.
First-time home buyer grants and programs can provide financial assistance to people who have a goal of becoming homeowners for the first time. In some cases, you may be able to qualify for these types of programs even if you’ve purchased a home in the past.
In general, assistance for first-time home buyers falls into one of the following categories.
Each category above has its pros and cons. (See below for more details.) And in some cases, you may be to stack multiple types of financial assistance together to make getting into a home even more affordable.
Grants for first-time home buyers are not loans, but rather non-repayable funds. As a result, grants can be an especially attractive way to try to find the funds you need to purchase a home.
Would-be homeowners may be able to apply grant funds toward a down payment, closing costs, and sometimes both. Homebuyer incentive programs may also help cover these expenses or to reduce the cost of homeownership in other ways.
Grants and homebuyer incentives are sometimes available from individual mortgage lenders. You may also find these types of home buyer assistance programs from government organizations, businesses, and perhaps from charitable or local community organizations.
If you’re not sure where to start your research, consider reaching out to your local state housing finance agency to see what types of homebuyer incentive programs and grants may be available. The U.S. Department of Housing and Urban Development (HUD) website is another resource that may help you find home buying programs available your state or local government.
Before you can qualify for a grant or a first-time buyer incentive program, it’s important to understand that you’ll need to meet certain requirements. Eligibility criteria can vary from one program to another, but there are common expectations you might want to consider.
The application process will differ from one first-time home buyer grant or incentive program to the next. Below are four programs to consider if you’re searching for financial assistance during the home buying process.
The National Homebuyers Fund (NHF) is a nonprofit organization that offers a forgivable cash grant program to help support affordable housing throughout the United States. You can’t apply for the NHF directly. Instead, eligible borrowers (first-time homebuyers and repeat buyers alike) work with a participating lender to apply for the program. If eligible, borrowers can use NHF grants to help cover down payment requirements or closing costs—up to 5% of the loan amount.[4]
PNC Bank offers eligible borrowers the PNC Closing Cost Assistance Grant. The grant is worth $5,000 that you can apply toward (but not exceed) the down payment or closing costs on your mortgage loan. The bank allows eligible borrowers to apply the grant toward the purchase of a primary or limited cash out refinance loan. However, you don’t have to be a first-time borrower to qualify.[5]
Bank of America offers qualified home buyers two grant options with the potential to make the process of purchasing a home more affordable.
Eligible Wells Fargo customers may be able to take advantage of two different grant programs with the potential to reduce the costs associated with buying a home.
It’s also worth noting that borrowers can combine both of the Wells Fargo grants above with other assistance programs.[7]
When you’re shopping for a home loan, one of the first questions you should ask a mortgage lender is what kind of home loans it offers. Finding an affordable mortgage with a lower interest rate and low down payment requirements could make homeownership more accessible.
It’s also important to compare loans from multiple lenders to make sure you find the best deal available.
Here are some examples of affordable mortgage programs for first-time home buyers you may want to consider.
Government-backed mortgage loans can often be a good fit for first-time home buyers. The government doesn’t issue these home loans to borrowers but rather insures them to provide extra protection for the lender.
If you use a government-backed mortgage to buy a home and don’t repay the lender as promised, the federal government will repay the lender a portion of the money you borrowed. Because of this arrangement, the risk is reduced for the lender. As a result, lenders may be comfortable offering lower interest rates to borrowers.
Lenders may also be willing to loosen their approval standards and loan money to borrowers with lower credit scores or lower down payment requirements than usual. This combination often makes homeownership more accessible to people who might find it difficult to qualify for a mortgage under different circumstances.
Below are some common examples of government-backed home loans.
Conventional loans are another financing option to consider when you’re buying a home. Yet traditional conventional mortgages typically require a 20% down payment. A home loan that requires such a large down payment might not be a great fit for a first-time home buyer.
However, there are several conventional mortgage loans available that offer lower down payment options. Below are a few examples of low-down payment conventional mortgages.
For many people, saving money for a down payment and closing costs can be a significant obstacle to homeownership. Over half of potential home buyers in the United States say they can’t afford to save for a down payment and closing costs according to a recent Bankrate survey.[16]
Yet there are resources, in addition to those listed above, you may be able to use to help with these types of costs. Below are a few down payment assistance options to consider.
If you have trouble saving a down payment on a mortgage on your own, your lender might be able to recommend a mortgage program that allows you to use a down payment assistance (DPA) loan. Each DPA program is unique. However, a DPA loan is often a second mortgage that’s secured by the home you purchase. These types of loans are sometimes available through state housing agencies or community organizations to eligible homebuyers.
In some cases, a DPA loan may feature very low interest rates. However, other DPA loans may be deferred (aka no payments) and forgivable after a certain number of years passes. But if you move or decide to sell your home before the forgiveness takes effect, you would need to pay off the loan. Before you decide to use a DPA loan to help cover your down payment or closing costs, it’s important to have a clear understanding of its terms and conditions.
An Individual Development Account (IDA) is a tool that low-income consumers can use to achieve important financial goals such as starting a business, paying for educational expenses, or buying a home. IDAs—available through certain public housing and nonprofit organizations—can also serve the purpose of helping would-be homeowners save money for down payment and closing costs.
Participants in sponsored IDA programs typically enroll for one to five years. During that time they may receive housing counseling. IDA participants also have an opportunity to contribute funds to a savings account and receive a dollar-for-dollar match for their efforts. (Some programs may even match the money that participants save at a higher ratio—as high as six matched dollars for every dollar saved.)[17]
Some employers and labor unions offer incentive programs to help employees with costs related to buying a home. These programs could help cover part of your down payment or closing costs in the form of a forgivable loan, grant, or other type of down payment assistance.
Employer-sponsored home buyer programs are often a result of joint efforts between state governments and employers in an effort to attract qualified workers to an area. So, these types of programs are not available to everyone.
However, it doesn’t hurt to research your options. Setting up a meeting with your HR or union representative might be a good place to start if you want to find out whether any home buying incentives are available to you.
As a first-time home buyer, the pressure to come up with money for a down payment and closing costs can feel overwhelming. But there are many resources available that can help make the path to homeownership easier to navigate.
Michelle Lambright Black is a nationally recognized credit expert with two decades of experience. She is the founder of CreditWriter.com, an online credit education resource and community that helps busy moms learn how to build good credit and a strong financial plan that they can leverage to their advantage. Michelle's work has been published thousands of times by FICO, Experian, Forbes, Bankrate, MarketWatch, Parents, U.S. News & World Report, and many other outlets. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).
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