About first-time home buyer programs

Along the road to homeownership, you’ll get a lot of advice – some of which will be helpful and some of which will not. Undoubtedly, hearing about “first-time home buyer assistance programs” will encourage you on your journey but how do you find them? Where do you even get started? Often times, the person who tells you about all these exciting options isn’t exactly an expert. In fact, they may not know much more than that a program or two exists. Not to worry, we’re here to help.

Defining a first-time home buyer

There are a lot of programs out there, some with exciting benefits to help you become a homeowner. But before we dive into all the details, let’s start by understanding who qualifies.You may think a first-time home buyer is someone who has never owned a home, but in fact, it’s not that simple. The U.S. Department of Housing and Urban Development (and the authority on the matter) defines a first-time home buyer as follows:

  • An individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the property. This includes a spouse (if either meets the above test, they are considered first-time homebuyers).
  • A single parent who has only owned with a former spouse while married.
  • An individual who is a displaced homemaker and has only owned with a spouse.
  • An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
  • An individual who has only owned a property that was not in compliance with state, local or model building codes and which cannot be brought into compliance for less than the cost of constructing a permanent structure.

Of course, if you’ve never owned a home of any type before, that qualifies you too.

We’ll break out first time home buyer programs by type below, but always ask your realtor, mortgage broker and other professionals you’ll be working with about programs in your area as well. So, let’s get started!

FHA Loans

The Federal Housing Administration (FHA) is a great loan for a first-time home buyer. The reason is simple – they offer flexibility that other loans can’t because they’re backed by the Federal Government. As a result, more first-time home buyers use FHA loans than any other mortgage loan option available.

FHA loans don’t require great credit. In fact, you can qualify for an FHA loan with a 580-minimum credit score!

You also can put as little as 3.5% down, a big difference between the 20% some loans require. If 3.5% is still a hard goal to reach, FHA loans will accept your down payment, even if it’s a gift from a family or friend. While many other mortgages require proof that you have enough money for a down-payment (and in some cases that you’ve had the money for a while), FHA loans recognize that a close family member or friend may be able to gift you funds to help you reach your dream a little faster.

FHA Section 203(k)

This loan works like an FHA loan in a lot of ways. The one difference with this option is the ability to add an additional amount into your loan, exclusively for home improvements. Let’s say you can’t afford your dream home just yet, but you’ve found one that’s pretty close, except it needs a new roof. Without an FHA Section 203(k) loan, you’d need to secure the money for improvements on your own – and that’s assuming a traditional lender will approve the mortgage knowing the roof failed inspection. A 203(k) loan allows you to borrow the money for the home, while also financing the amount of the repairs. Plus, the loan is still backed by the FHA, meaning you’ll still benefit from things like a lower down-payment and credit score requirement.

Here’s what you need to know about the FHA Section 203(k) loan – you have to follow the steps carefully to ensure you meet requirements – before and after you’re approved for the loan. You typically aren’t allowed to complete the repairs yourself, and there are time limits for when the work has to be completed. It’s important to get educated on any option you choose and work with your team of professionals through the process.

USDA Loans

The U.S. Department of Agriculture offers a loan program for low to moderate income homebuyers. The USDA loan applies in certain areas only, typically more rural locations. This doesn’t necessarily mean you’ll be surrounded by corn fields and cows, but it isn’t the best option if you are looking to walk or bike to work in a major metropolitan city.

The biggest benefit of this loan, if it fits your needs, is that a down payment isn’t required. That’s a real benefit over even FHA loans, which are already well below the traditional 20% down payment minimums.

VA Loans

The Veteran’s Administration offers mortgage loans for active or retired military veterans and if you qualify, it’s another option where no down payment is required. It’s not specifically a first-time home buyer option or even meant to be an affordable homeownership program, but it’s a great option in both those cases. Plus, just like the FHA loans, it’s backed by the Federal Government, so you can typically get a good interest rate as a first-time buyer.

Along with the loan, the VA offers Adapted Housing Grants. Simply put, if you were hurt and disabled as a result of your service, you may be eligible to receive a grant towards purchasing an accessible home. If you find a home that’s not accessible, this grant can also apply to updating a home!

Good Neighbor Next Door Program

The Department of Housing and Urban Development (HUD) has homes for sale and if you qualify, you can get into one for much less than you might think. Here are the facts about the Good Neighbor program – it’s not a loan program, it’s a reduced sale price program.

You’re eligible for the Good Neighbor Next Door program if you are in an approved profession – this includes law enforcement officers, firefighters, emergency medical technicians and teachers. Any other careers mean you’re not eligible for this option.

Additionally, one thing to keep in mind is that the houses available for sale through this program are typically in areas HUD is working to revitalize. In laymen’s terms that means you may be looking at homes in an area you wouldn’t normally consider because of the surrounding or neighboring economic conditions. Even at up to 50% off, it’s important to do your research on the area and know what trends are happening there. If the area is on the upswing, it may be a great way to get in early – and at a drastically reduced sale price.

 Fannie Mae and Freddie Mac

These names often come up when you’re talking about buying a home and for good reason. Fannie Mae stands for the Federal National Mortgage Association and Freddie Mac’s abbreviation stands for the Federal Home Loan Mortgage Corporation. Both offer some great options for first time home buyers.

Fannie Mae’s offers an option called the HomePath Ready Buyer Program, which started in 2015. The program requires any participant to complete online education in the area of home ownership. Along with good education, you’ll then become eligible to receive up to 3% of your home’s purchase price as a rebate. That means just as you’re settling and putting things in their place, you’ll be the recipient of a check. Just think about the benefit – 3% of a $200,000 loan is $6,000 back in your pocket!

Freddie Mac has a program that allows lenders to loan money with just 3% down. It’s not restricted to first time home buyers but it’s a great option if that’s you! Just like Fannie Mae, you’ll be required to participate in a borrower education course, but that’s not a bad thing. The program is called Home Possible – definitely worth checking out before you buy.

Energy Efficient Mortgage

Also known as EEM, this mortgage is designed to help you make green improvements to your new property! EEM loans are still backed by the government through FHA or VA programs, but you can finance some improvements through the mortgage itself. For example, let’s say you’re moving into a home with an outdated heating and air unit. You know you’ll need to update it, but you’re already scraping all your pennies together to get into the home and adding another $5,000 doesn’t seem feasible. This situation is a great time to talk to your mortgage broker or real estate professional about the EEM option. You’d be able to make the necessary energy efficient updates right away, but finance it through the mortgage, making it much more affordable!

Native American Direct Loan

This is another type of loan that offers great benefits if you qualify. The Native American Direct Loan program is a loan program for Native Americans and their spouses. If you qualify, you’ll be eligible to buy homes on federal trusts lands, with the VA serving as the lender.

This loan doesn’t require a down payment OR private mortgage insurance – two huge benefits in comparison to many other loan types. Plus, this first-time home buyer loan stays competitive on closing costs and other loan terms.

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