The federal government and independent, non-profit organizations offer a variety of home loan assistance programs. Many of these are loosely categorized as grants. Grants are generally defined as money given to an organization to be distributed among eligible applicants. However, most grant programs are not set up as direct-to-consumer transactions.

The federal government agency HUD oversees a number of grant programs, most of which are funded directly by the government in an effort to help individuals cope with the high cost of purchasing a residential property, especially in the area of down payment assistance. Although commonly referred to as free money, there are special requirements that must be met, and most of these grants are actually a form of subsidy.

How Free Is Free?

Normally, home buyers are simply trying to get the lowest interest rate they can find. They also want to get a break on the down payment because their savings are not yet appreciably large. Federal government grants are rarely made in the form of a cash transfer. Instead, they are allotted to various community organizations that are themselves subject to specific regulations concerning the dispersal of funds.

For the most part, federal grant money is meant as an assistance program rather than a simple giving away of money. Applicants who are first-time home buyers, for example, may be able to obtain money from a local organization dedicated to helping lower-to-middle income families buy a home when the minimum income requirement falls a bit short of the required percentage for obtaining the desired loan amount.

There are strings attached. Most likely, the money will be granted either as part of the down payment on the home loan, thereby reducing the loan balance immediately and making the monthly payments more affordable. In other cases, the money is used as a subsidy, with a small portion allotted each month to help with the monthly payment.

In other words, the grant money is not sent directly from the government or the local community organization to the applicant's bank account. It is more of an assistance program, much like a college student loan that works to subsidize the cost of tuition, books, and lodging.

Reduced Interest Loans

Each bank has its own real estate loan qualifying requirements. Some are more lenient than others when it comes to income verification, down payment, and interest rates for first-time buyers. However, even if the applicant fails to qualify for a traditional loan, a government grant may be of assistance. The community organization sets up the paperwork, reviews the applicant's financial and personal information, and grants a specified amount of money to be dispersed each month to aid the new property owner. Reduced interest loans are one of the most common forms of financial assistance from an organization receiving money from the federal government.

These indirect grants work as a form of guaranteed collateral and therefore qualify many home buyers for a lower interest loan. However, the money itself is still spent on the home loan itself, not dispersed directly to the applicant.

Guaranteed Loans

Most individuals are a bit confused about this term. It does not mean that the loan applicant is guaranteed acceptance on their loan. Instead, it means that the government or local community organization will help with the down payment, making it possible to forgive the otherwise required mortgage insurance. This can save new homeowners a good amount of money each month. The federal government will then guarantee the mortgage, but the homeowner will still have to qualify for the monthly payment schedule.

This type of assistance is also available for home improvement loans. If the homeowner does not have a good amount of equity in their home, the bank may refuse a low interest rate. However, a grant program may be available to aid with the down payment or to pay a small percentage of the interest each month.

Contacting The Right People

The best way to find out about government loan subsidies and grant programs available in a given region of the country is to contact HUD directly or check out the available programs listed by the state's housing authority. There is usually a waiting list, so getting the ball rolling early is a good idea even if a suitable property has not yet been identified or the loan applied for. Guaranteed grant money does not exist, but funds are certainly available for those who meet the qualifying requirements.