Depending on the loan program you choose, there is a minimum investment required called the down payment. The down payment is a certain percentage of the purchase price or appraised value of the home (whichever is lower). Closing costs and pre-paid items are different than the down payment and are combined to equal the total amount of money a home buyer brings to closing. While the down payment represents a portion of the equity of the home, the closing costs represent the costs associated with creating the mortgage (i.e. appraisal, title insurance, lender underwriting, etc.)
Some programs, such as VA and USDA, do not require a down payment. Other programs, like FHA or Conventional, require 3%, 3.5% or 5% minimum down payments.
Grants are free money set aside to be given as needed to potential home-buyers. Grants typically come in the form of a federal grant, a local bond program, bank subsidy projects, or a funding initiative sponsored by a local group. Grants are not paid back—it is free money.
Grants programs vary. Some programs might give a 3% or 4% or 5% or 6% grant to cover all down payment and closing costs. Some might award a dollar amount.
Click here to see what grants are available to help you buy a home.
Since grants are not repaid, they are valuable resources for potential home-buyers whether they have money to bring to close or not.
Be sure to talk to a qualified local lender who is also certified to administer DPA programs in your state and local jurisdiction. Work with a trusted advisor who will listen to your needs and understand your situation. A trusted advisor can present ALL your personal options.