Introduction
Donations From Entities – Grants
When you’re buying a home to live in, you might be able to use money given to you by certain organizations to help pay for the down payment, closing costs, or to keep as reserves in case of emergencies. This kind of help is called a grant. However, the person selling the house, or anyone else who might benefit from the sale, cannot give this grant.
Organizations that can give grants include government agencies (like federal, state, or local governments), housing finance agencies, nonprofit organizations that don’t have to pay taxes, regional Federal Home Loan Banks through their affordable housing programs, your employer if you work for them, Indian tribes recognized by the Secretary of the Interior, and lenders under specific conditions.
The grant cannot be part of your mortgage loan. If the grant is being used for making the house more energy efficient, it’s allowed as long as it’s part of the program’s rules and meets other requirements for how much you need to contribute.
Minimum Borrower Contribution Requirements
Depending on your loan’s terms and the type of home you’re buying, there might be a rule on how much money needs to come directly from you, not from a grant. If your loan amount compared to the home’s value is 80% or less, and you’re buying a home with one to four units to live in, you don’t need to put in any of your own money. However, for homes with more than one unit, if the loan amount is more than 80% of the home’s value, you must contribute at least 5% from your funds before using grant money.
Documentation Requirements
You need to show paperwork proving you got the grant. This could be a letter or legal agreement that says you’re getting the grant, it doesn’t need to be paid back, and how the money will be given to you, the lender, or the person handling the closing of the home sale. There should also be proof of how the grant money was transferred, like a copy of a check or a statement showing the money was received.
Lender-funded Grants
Grants given by lenders have specific rules. They’re only for HomeReady loans, which are for buying homes, and the home must be a single unit. Depending on the loan amount and home type, you might need to contribute 3% or 5% from your funds. The lender must be running a program aimed at helping people with moderate incomes, community development, or similar goals. If a lender is just helping with closing costs, different rules might apply.
Lender Contributions
Lenders can also help by paying some of your closing costs or prepaid fees. This can be done through premium pricing, where the cost is included in your loan, or directly from the lender without expecting anything back. The help from the lender can’t be used for the down payment or reserves and must not exceed the actual costs and fees. If the lender’s contribution is more than what’s needed, any extra money must be used to lower your loan amount or given back to you.
If the lender is also involved in the home sale, the contribution must be considered along with other financial support to make sure it doesn’t exceed what’s allowed.
Sometimes, lenders can give you cash or similar incentives that don’t need to be shown in the closing documents. However, if a lender has to help with the down payment due to a legal issue, those cases are handled separately, and lenders should talk to their Fannie Mae team.
Recent Related Announcements
These announcements provide updates related to grants and lender contributions:
– Announcement SEL-2025-03 on May 07, 2025
– Announcement SEL-2022-10 on December 14, 2022
– Announcement SEL-2022-07 on August 03, 2022
– Announcement SEL-2021-08 on September 01, 2021
– Announcement SEL-2020-07 on December 16, 2020
References
For more details, visit Grants and Lender Contributions of the Fannie Mae Selling Guide.