As a first time homebuyer, you have many loan programs and grants to choose from that help you afford your first real estate purchase. We’ve compiled a list of some of the best of these programs, grants, and loans that generally assist with the down payment and closing costs for first time homebuyers like yourself.
State And Local First Time Homebuyer Programs
The FHA loan, insured by the Federal Housing Administration, is known for lower credit score requirements and smaller down payments, unlike most conventional loans. First time homebuyers interested in this loan can have a minimum credit of 580 and put down as little as 3.5% or a credit score of 500-579 with at least 10 percent down.
One downside to this loan is you’ll need to pay mortgage insurance if you end up putting down less than 20%. Because of the upfront and annual premiums you’re paying, the overall borrowing costs may be higher. This mortgage insurance protects the lender if you default on the loan, as opposed to homeowners insurance that protects you.
This program is perfect for first time homebuyers who are also qualified U.S. military members (active duty, veterans, and eligible family members). Backed by the U.S. Department of Veterans Affairs, this loan offers lower interest rates and does not require a down payment. However, VA loans do have a funding fee that can be merged into your monthly loan payments.
Some more bonuses to VA loans include no requirements for a minimum credit score or any mortgage insurance.
Fannie Mae or Freddie Mac
These conventional loans sponsored by government enterprises require a minimum down payment of 3 percent. Qualifying borrowers will need a 620 minimum credit score and a generally spotless financial history. In some instances, Fannie Mae allows a debt-to-income ratio of as high as 50.
If you are putting down less than 20 percent, you will need private mortgage insurance, but it can be waived once your loan-to-value ratio is below 80 percent.
State & local first time homebuyer programs and grants
First-time homebuyers may receive aid from their local government to purchase a property in the area. In an effort to bring in new residents, cities offer grants that you don’t have to repay or low-interest loans with deferred repayment. Some of these programs may have income limits.
While doing your research, be sure to check your state’s housing authority website for further details or ask your local lender to learn more about aid for first time homebuyers in your area.
Benefits of First-Time Homebuyer Programs
- Grants: some areas provide cash to help with home-related costs such as closing costs or your down payment.
- Help with closing fees: some loans include a limit for how much can be charged for closing costs.
- Deferred payments: certain loans don’t charge interest, and you won’t need to repay them until you sell the home or pay off the mortgage.
- Interest savings: individual organizations may offer to assist with interest or help borrowers qualify for lower interest rate loans.
- Loan forgiveness: homeowners will be forgiven a portion of their debt when they stay in the home for a specific period.
- Down payment assistance: certain programs don’t require a down payment or only a small down payment.
It’s unlikely all of these benefits will be available to you in your area or financial situation; however, it’s worthwhile to research these before buying a home.
What to Consider
Before you seek out the assistance we’ve listed above, it’s essential that you first ensure you qualify as a first-time homebuyer. If you haven’t owned a home in the last three years, you may be considered a first-time homebuyer by several nonprofits and government programs. That also includes investors who own rental or investment properties, whether or not it’s considered your primary residence.
Some programs insured by the government, such as FHA, require the property to fulfill certain conditions before qualifying. Local and state programs may also have income restrictions.
Regardless of which programs you qualify for, buying a home is a significant financial decision that should be thoroughly researched. Making a financial plan beforehand is critical, and you may want help.