Forgivable Grants programs to assist with closing cost and/or down payment.
Grants are money given through a Government, Municipality, public or private organization that allows the funds granted to be used in the new home purchase transaction. Many of these programs are created to incentivize buyers to purchase a home in a targeted area. This is done to help improve the community and rejuvenate locations that need home owners. Often the structures of these grants are more like a second mortgage. They do provide the funds for assistance but they are attached as a lien to the property.
Forgivable Grants with a term
- This grant maybe forgivable if the homeowner agrees to occupy the property as a primary residence for a set period of time. The terms tend to be anywhere between 5 to 30 years. Each grant may have its own unique set time period requiring occupancy.
Forgivable Grants with a residency requirement-
- In all likelihood the a grant will require that the recipient of the funds remain in the home while the term of the lien is in effect. If the property is no longer a primary residence during the grant's term repayment may be required.
Grants in second lien position
- Although the grant is not a mortgage, in a pure sense of a mortgage, because it does not have an interest rate or monthly payment, it is however, attached to the property in second lien position behind the first mortgage. It may need to be subordinated if an equity line or an additional 'second mortgage' was opened on the property until the grant attached to the property is released via its terms. Until released it will remain attached to the property.
Free and Clear Grants
- Although less common than a grant with a lien attachment, free and clear grants may be available in certain areas for certain properties. These grants are in essence a gift of the funds with no additional attachment to the property.
Utilizing grants to assist with down payment and/or closing cost may still require a first mortgage.
The grants tend to cover 3.5 to 10% of the purchase price of the home. Although you may be able to "Stack" grants. Stacking grants is when borrowers get multiple grants/programs and use them in the same home purchase.
This stacking of grants gives more money to be utilized for down payment and closing cost. In some situations if the grant money is not fully utilized in the loan expenses and down payment the remaining money may be allowed to be applied to the principle amount of the first mortgage.
If there is grant being used the remaining funds needed to purchase the home will usually come from a first mortgage. The majority of the first mortgages are usually FHA or Conventional home loan. Before getting a grant you should determine if you qualify for the first mortgage. In addition, you want to make sure the first mortgage allows for the grant program chosen to be used.