First-time homebuyer programs are designed to help low to moderate income families achieve homeownership by making the process affordable and accessible. If you're thinking about purchasing your first home and not sure what kinds of assistance is available, researching grant assistance programs for first time homebuyers makes sense. Whether this program works for you will largely depend on if you meet income limit requirements and have the ability to meet additional qualifications.
Income Limits Based On City
State housing finance agencies administer most first-time homebuyer programs. Working with designated lenders, a HFA will pre-screen first before sending you to a participating lender. Your first hurdle to cross is meeting the area median income limits set by HUD. Income limits are set by each program and vary from city to city. For example, the area median income limit set by the California Housing Finance Agency in San Francisco for a family household of two is approximately $95,000. In Texas, on the other hand, the income limit is set at 115 percent of the area median income of the homebuyer's city. In Dallas, that limit would be approximately $73,000.
Grant Specifics And How They Work
While each city has its own version of a first-time homebuyer grant program, the basic mechanics are similar. The state's HFA will assist you with closing costs and in some cases a portion of your down payment by providing a "silent second" deferrable loan or a DAP. The loan is usually interest-free and deferrable for as long as you live in the home. The loan may become due and payable if you move out of the home or rent it out.
In addition to meeting income limits, there are also additional requirements. To be a first-time homebuyer, you can't have owned a home in the last three years according to federal housing rules. You must also plan to make the home your primary residence. The HFA will also require you to complete a homebuyer education course in order to complete your application. Lastly, the home purchase price must fall within limits set by the HFA.
Disadvantages Of First Time Homebuyer Programs
While first time homebuyer programs offer low-interest loans and more flexible credit score requirements, there are some drawbacks. If your long-term plan is to eventually rent out your primary residence, you may want to consider flexible financing that doesn't penalize you for moving. Additionally, the loans offered through the FHA may not match the lowest interest rates available on the open market. Lastly, if you sell the home within nine years of purchasing it, you may be subject to recapture tax by the IRS. If the home has increased in value significantly in the first few years of ownership and you sell, you'll be required to pay a portion of the profits back in tax.
- Texas Department of Housing and Community Affairs
- California Housing Finance Agency: Income & Sales Price Limits
- Financial Web: Three Disadvantages of First Time Home Buyer Grants
- National Association of Realtors: First-time Home Buyer Loans: Pros and Cons
- Office of Housing and Urban Development: FY 2013 Median Family Income Documentation System
Monica Dillon has more than 10 years experience in real estate sales, marketing, investing and appraising. She specializes in energy efficiency building practices and renewable energy. Dillon has been syndicated by the National Newspaper Publisher's Association. Her work has also appeared in the "Journal Of Progressive Human Services."