First-Time Homebuyer Assistance Programs And Grants

Here's how to find financial help to purchase your first home.

Financial Support vs. Marketing

First-time buyer programs can be seen as marketing messages rather than financial support.

You might see an advertisement for a mortgage lender that reads: "Ask us about our special first-time homebuyer programs."

This is common. This doesn't necessarily mean that the lender promotes programs offering financial support to first-time buyers.

Ask if you are being promoted loan programs available to all homebuyers or specific financial assistance for first-time buyers.

Financial Support vs. Loan Programs

Two loan programs are available to all homebuyers, and they are especially suited for first-time buyers:

• FHA loans:

  These loans are available to you with as little as 3.5% down. They don't require that you have any reserves after closing. You can also use gift funds or co-signers to help you pay the down payment. They are great for first-time homebuyers with little savings. This FAQ explains FHA loans.

• Fannie Mae and Freddie Mac 3 percent down programs:

  These loans are available to those with less than 3 percent down. The mortgage insurance that you pay for the low down payments is often lower than FHA loans. Learn more about and how they compare to FHA loans.

These examples show how federal government support is built into the U.S. housing financing system. These loans are made by private lenders, such as Fannie Mae, Freddie Mac, and FHA. However, the government backs them, so it's less risky for lenders. This allows them to offer lower down payments and other features that first-time homebuyers often want.

These loans wouldn't exist on the private market without federal government support. These loans offer financial support but not explicit financial assistance.

Types Of Financial Support For First-Time Homebuyers

What does financial support for first-time buyers look and feel like?

The federal government offered tax incentives to first-time homebuyers in response to 2008's global financial crisis. However, these programs are not currently available (October 2015), and are very rare.

Most often, financial support programs are found through local governments or nonprofit organizations. These programs can be found in the following formats:

• Assistance with a down payment

• Tax credits

• Housing units that are designated to be sold below the cost norms in a particular area (often called "Below Market Rate Housing")

• Special programs are available for firefighters and teachers who work in critical infrastructure jobs.

Seattle, for example, offers up $45,000 per household as down payment assistance for first-time homebuyers.

You must meet income requirements to be eligible, just like in other cities that offer this type of assistance for down payments. The Seattle case is representative of the way these programs work in other cities. To be eligible, you must earn at least 80 percent of the area's median income. To help you determine your eligibility, each city will have an income table posted on its website.

Each city will provide full details about their programs, including whether the downpayment assistance must be paid back as a loan or after you sell your home and whether the city has a share in the appreciation of your home.

Another example is the tax credit program offered by San Francisco. This significantly increases your tax benefits as a first-time homeowner.

A homeowner can usually claim mortgage interest as an income tax deduction. To calculate a lower taxable income, they subtract the mortgage interest paid in any given year from their gross. This lower income helps homeowners save money on taxes.

A mortgage tax credit program offers more benefits than a mortgage deduction program.

The San Francisco mortgage tax credit program, which is representative of many such programs in other cities, allows you to deduct 15% of your annual mortgage interest from your tax obligation. The remaining 85 percent is then taken from your gross income as usual. This results in a significant reduction in homeownership costs.

How To Find Financial Support For First-Time Homebuyers

These types of financial assistance programs can be found in two ways:

• Many cities have a mayor's office of housing:

  You can search for housing programs through the mayor's website. With your city name, you can search for affordable housing or down payment assistance. You will be directed to a local government website that will provide information about your options. The links to nonprofit support resources are often included in the local government resources. These links to San Francisco and Seattle are good examples of what you should look for.

• Ask your lender:

  You should know that not all lenders will lend to first-time homebuyers who are also receiving financial assistance. You must ensure that your lender agrees to any financial assistance program you may want to use. You can usually start by talking to your lender if they support these programs. They will be able to point you in the right direction if you have any questions.