Purchasing a home is a complicated process that can prove rather stressful. Homebuyers face piles of paperwork, unfamiliar terminology, and a wide range of professionals and their associated fees, which is to say nothing of the financial considerations involved in undertaking a home mortgage.
Luckily, however, first-time homebuyers have a number of resources available to them to make the process as easy as possible. Overlooking some of these programs could cost dearly down the line, so it is important to consider each one and determine if it is a right fit.
Here are some programs designed to help first-time homebuyers:
Many people don’t know about the US Department of Agriculture (USDA) homebuyer assistance program, which focuses on increasing residency in rural areas across the country. Individuals do not need to purchase or operate a farm to qualify for the program, but they do need to purchase a home in a participating area. Individuals who qualify may be able to avoid a down payment completely. Furthermore, the loan payments stay fixed because the USDA guarantees the loan. People with a credit score of 620 or higher will have streamlined processing, but income limitations exist and they vary according to geographic area.
The US Department of Veterans Affairs (VA) provides homebuyer assistance programs to veterans, service members, and their families. Because the VA guarantees part of the loan, lenders can provide special features. The loans typically have low interest rates and do not require a down payment. Also, there is generally no need for private mortgage insurance, and the VA can help negotiate new loan terms if payment difficulties arise. The VA has not set any minimum credit score for participation.
Loans through the Federal Housing Administration (FHA) have become more popular among first-time homebuyers. Operating through the US Department of Housing and Urban Development (HUD), the FHA insures the mortgage, which allows for lower down payment requirements and closing costs than other loan options do. Through this program, individuals with a credit score above 580 could have down payment requirements as low as 3.5 percent of the total purchase price.
Good Neighbor Next Door
A program sponsored by HUD, Good Neighbor Next Door offers assistance to firefighters, primary and secondary schoolteachers, emergency medical technicians, and law enforcement officers. In areas designated as revitalization areas, this program can reduce home prices by up to 50 percent. The HUD website lets people search for revitalization areas near them. People who use the program commit to living in the home for at least three years.
State and City Programs
In addition to federal programs, a number of state and even city programs exist to encourage first-time homeowners to take the leap. Each state has a housing finance agency (HFA), which can provide guidance about the types of programs available and how homeowners might qualify for them. Many larger cities also provide assistance. For example, the Mayor’s Office of Housing and Community Development in San Francisco provides opportunities for purchasing homes below market rate and with smaller down payments. Similar programs exist in cities across the nation.
FHA 203(k) Program
The FHA helps individuals who want to purchase homes in need of repair through the 203(k) rehabilitation program. The program provides loans backed by the FHA up to the predicted value of the property after renovations. Thus, individuals can also borrow the money they need to complete renovations and roll them into the main mortgage for the home.
Fannie Mae and Freddie Mac
These two government-sponsored entities work with local lenders to negotiate better terms for low- and moderate-income families. Through these organizations, individuals can get competitive interest rates and substantially reduced down payment obligations. Typically, down payments through these organizations are only 3 percent of the total purchase price. First-time homebuyers should check out the HomePath Ready Buyer program offered by Fannie Mae. The program provides key home-financing education.
Energy Efficient Mortgages
The purpose of the FHA’s Energy Efficient Mortgage (EEM) program is to provide homeowners with the funding they need to complete green renovations in their homes. The federal government insures these loans through FHA or VA programs. The additional money used for green renovations is rolled directly into the primary loan so that individuals do not need to make a larger initial payment or come up with additional money shortly after moving into a new home. Insulation, heating and cooling systems, and new windows are all covered under EEM.
Native American Veteran Direct Loans
The Native American Veteran Direct Loan program was instituted in 1992 to help Native American veterans purchase federal trust land. The lender is the VA, and the loan requires no down payment or private mortgage insurance. Through the first-time homebuyer grant, individuals can secure a 30-year fixed-rate mortgage and low closing costs.