Grant money is great for first time buyers. The short answer is yes! New FHA requirements require PMI for the life of the loan. There are better programs out there if you have the right credit scores. Fannie Mae my community conventional loans might be a better choice.
I just checked with Gary Richardson at Soy Capital Bank and he said yes! Grant money can be used for downpayment and closing costs. He is a great source for new buyers and would be happy to answer your question in more detail (217-475-2766). Please contact me at email@example.com if I can help you with any of your real estate needs. Best of luck, Karen