Today’s market is tough for many homebuyers, thanks to higher interest rates and home prices.
In response, mortgage lenders like Compass Mortgage are working to bring homebuyers more affordable options.
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One such option is the FHLB Grant, which provides down payment and closing cost assistance to income-eligible borrowers. (FHLB is an acronym for the Federal Home Loan Bank System, a consortium of eleven banks all around the United States that focus on mortgage financing and related community investments.)
In this article, we explain the eligibility criteria for the FHLB Grant so you can decide whether to apply.
What is the FHLB Grant?
Down payments and closing costs can be a significant financial barrier for homebuyers.
The FHLB Grant is a homebuyer assistance program designed to help eligible families and individuals overcome barriers to homebuying.
Unlike loans, grants typically are not repaid. Eligible homebuyers who use the grant will not be taking on additional debt.
How is the FHLB Grant made possible?
The FHLB System was established in 1932 to support mortgage lending and other investment activities during the Great Depression.
Its mission is to provide liquidity to its members so these institutions can support housing finance and community investment.
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Benefits of the FHLB Grant
The FHLB Grant makes purchasing a home feasible for those who cannot comfortably afford the up-front costs of homeownership.
The grant provides the following benefits:
- Up to $5,000 in assistance
- Works with any loan type, including conventional, FHA (Federal Housing Administration) and VA (Veterans Administration or Department of Veterans Affairs)
- Can be combined with other programs, such as Illinois Housing Development Agency (IHDA) and Iowa Finance Authority (IFA), as well as similar grants or down payment assistance (DPA) programs from other states
- No repayment required
- Supports first-time and repeat homebuyers
Are you a homebuyer in need of additional financial support?
Let’s review the eligibility criteria to determine whether you may qualify for the FHLB Grant.
What are the eligibility criteria for the FHLB Grant?
To access the FHLB Grant, homebuyers must meet certain income, contribution and counseling requirements.
Income requirements: Household-based income limits
One of the primary eligibility factors for the FHLB Grant is household income.
The grant considers the total household income rather than the individual’s, meaning the entire household must qualify.
Income limits are determined by the area median income (AMI) for the location where the home is being purchased.
Homebuyer contribution: At least $1,000 toward the home purchase
Buyers must be able to make a minimum contribution of $1,000 toward the home purchase to qualify for the FHLB Grant.
The contribution can be made via a home inspection or earnest money deposit.
Loan compatibility: Can be used with any loan type
Fortunately, buyers don’t have to worry about qualifying for a specific loan type to qualify for the FHLB Grant.
Homebuyers can choose from a range of loan options, including:
- Conventional
- FHA (Federal Housing Administration)
- VA (Veterans Administration or Department of Veterans Affairs)
- USDA (U.S. Department of Agriculture)
This flexibility allows homebuyers to choose the best loan option for their financial situation.
Education requirement: Must complete pre-purchase education
Buyers must complete a homebuyer education course before purchasing their home.
The course is meant to educate buyers about the homebuying process, mortgages and budgeting to help them avoid common financial pitfalls.
HUD counseling requirement: Must complete telephone session
In addition to the homebuyer education course, homebuyers must complete a telephone counseling session approved by the U.S. Department of Housing and Urban Development (HUD).
The counseling session helps buyers determine whether they’re financially prepared to buy a home and how they can prepare for a mortgage.
Which types of buyers are best suited for an FHLB Grant?
The FHLB Grant can make homeownership more accessible to the following types of buyers.
First-time homebuyers
Homeownership is difficult to afford for many first-time buyers.
The FHLB Grant helps ease this financial burden by providing up to $5,000 for the buyer’s up-front costs.
First-time buyers often also qualify for other assistance programs that can be paired with the grant, thereby increasing the buyer’s overall financial support.
Low- to moderate-income families
FHLB Grant eligibility focuses on household income rather than individual income, ensuring assistance is given to the neediest.
Buyers who need assistance with up-front costs
While the FHLB Grant is invaluable for first-time homebuyers, you don’t have to be a first-time buyer to benefit.
Any buyer who needs help covering down payment and closing costs may be eligible, including:
- Individuals re-entering homeownership after renting
- Buyers with limited savings
- Buyers who want to preserve their cash flow for future home expenses or emergencies
The experienced loan officers at Compass Mortgage can help you determine whether you are eligible for the FHLB Grant.
Common questions about qualifying for the FHLB Grant
The FHLB Grant can confuse homebuyers, especially if unfamiliar with the home purchase or mortgage processes.
Let’s look at some of the most frequently asked questions about FHLB Grant qualification.
What counts as income for eligibility?
Typically, household income includes the following sources from every individual living in the home:
- Wages and salaries
- Self-employment income
- Social Security benefits
- Retirement income
- Public assistance
- Alimony and child support
- Rental income
Specific income sources counted or excluded may vary, so it’s best to consult with an FHLB-approved lender like Compass Mortgage to determine whether you qualify.
Are there restrictions on the property type?
The FHLB Grant is meant for owner-occupied properties, including single-family homes, condos and townhomes.
It cannot be used for investment properties, second homes or vacation homes.
How do I apply for the FHLB Grant?
To apply, buyers must work with a lending institution that is an FHLB member, like Compass Mortgage.
Then, the buyer must meet the eligibility requirements, complete the required education and obtain grant approval before closing.
Apply now with Compass Mortgage
The current housing market is challenging for many homebuyer hopefuls, but help is available.
To learn more about the FHLB Grant or whether you might qualify, contact the Compass Mortgage team for assistance or apply now.