So I am looking to buy my first property and I stumbled upon what's called a NHF grant. The National Homebuyers Fund is a federal program that gives 5% of loan value grants to the borrower for their down payment and related closing costs associated with FHA and VA loans. Depending on geography; the limitations on credit, debt to income ratio, maximum income, and max loan value vary. By looking at those basic qualifiers I can see my personal situation allows me to take advantage of the program. So take the free money for the down payment and closing costs. Right??

However, there are some drawbacks to this program. 1st of all, by doing some preliminary research, it looks like one could expect an increase of 50 to 75 bps on your interest rate. But given one can always refinance the loan, the costs of the additional interest will be trumped by the initial equity and closing costs you save. 2nd, there are incremental closing costs of 1% of the loan value. However, since the grant is for 5% of an FHA which only requires 3.5% down, does it matter what the closing costs are as long as the grant covers it? And finally, if you are in a fast paced market, like mine, with most likely multiple offers on the table; will a seller (given all else equal) pass in favor of a cash down payment. Increased government involvement usually means increased compliance costs associated with the loan, which has the potential to delay closing for the seller.

As I said, I am new to the whole "real estate game" but am wondering if anyone out there has had experience with these grants. Or more importantly, knows how to navigate their potential pitfalls in order to take advantage of a free down payment and closing.