Free money for first-time home buyers

By Steve McLinden, Bankrate.com

Dear Steve,
I've heard about first-time home buyers getting help from the government to purchase a home. Exactly what do I do to receive the same special treatment? I've looked on the Internet but only got Web sites that, of course, want you to buy their programs before giving you any information. Please let me know how to do this step by step. I would really appreciate it. Thank you very much.

-- Marlana

Dear Marlana,
Glad to oblige. While the notion of "free money" is usually a whimsical one, the federal government just might have some of it set aside for you in the form of a grant of up to $10,000 to put toward a down payment and/or closing costs on a new home -- with a few caveats, of course.

Under a first-time home buyers' program called American Dream Downpayment Initiative (ADDI), created a couple of years ago but funded only this year, the government can grant consumers up to 6 percent of the purchase price of a home (maximum: $10,000). To qualify, you must be a first-time home buyer with income that doesn't exceed 80 percent of the area's median income.

About 400 state and local government agencies are sharing a relatively scant $162 million in funding for the program. For information on whom to contact in your state to see if you qualify, go to the U.S. Department of Housing and Urban Development's Web site or call HUD's locator service at 202-708-1112.

Appropriations for ADDI are expected to run out quickly, so you'd better hustle. A lot of folks would like to take advantage of this program, and with political and budgetary uncertainties still ahead, there's no telling what housing programs will be cut, created or short-funded next year.

If you don't fall under 80 percent of your area's median income, there are other programs at both the federal and private levels that can get you into a house with no money down.

On the private side, many lenders are offering 100 percent financing options, and some will finance closing costs, meaning you may be able to buy a home with less than $1,000 out of pocket. Check with your financial institution and a few of its competitors to shop for the best deal. Many of these banks tap into state or federal programs for funding.

The Federal Housing Administration also has many low- or no-down-payment programs available, such as its First-Time Home Buyer program. But if you have a good-to-excellent credit score, you might fare better in a conventional loan program and save thousands of dollars over the duration of a 30-year loan. Under FHA, you may have to jump through more hoops, such as prepayment of mortgage insurance, payment of 3 percent down and special FHA appraisal fees. (Either way, the terms of your note will be determined by a loan officer.)

For available local home-buying programs, visit the HUD's local buying Web site. HUD also provides a list of local housing counseling agencies.

You might also find the extensive list of resources at an objective nongovernment site, www.firsthomebuyers.net, to be helpful.

Good luck, future homeowner!