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First-Time Homebuyer Loans & Programs

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First-Time Homebuyer Loans & Programs
6 min. read
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Image: William Potter / Shutterstock.com

Buying a home might seem simple, but there’s actually a lot more involved than you might initially think. For instance, in addition to a variety of new terms to understand, there’s also paperwork to complete and fees to pay before closing on your new home. And, while you might be tempted to rush through the process as quickly as possible, cutting corners could be financially detrimental in the long run.

Fortunately, there are quite a few options to help you purchase your first home. Below, we’ll review first-time homebuyer loans and programs that will give you a better deal when you purchase a house. In fact, if you choose one of these first-time homebuyer programs, you may even see significant savings compared to a traditional or conventional mortgage.

FHA Loans

The Federal Housing Administration (FHA) operates a program to help people who may not have the best credit history. If you have had your share of financial issues, this program might allow you to buy a house — even if you don’t meet the ideal conditions set by conventional mortgages.

For example, affording a large down payment is a challenge for many first-time buyers, but FHA loans allow you to initiate a mortgage with only 3.5% down. The FHA also guarantees your loan through this program, allowing lenders to accept borrowers with lower credit scores. However, you’ll likely have to pay ongoing insurance premiums to protect the lender, so there may be better options.

VA Loans

If you’re a current or former service member, you can benefit from the VA loans program, in which the U.S. Department of Veterans Affairs backs mortgages that could help you secure a home loan without a down payment.

Notably, the VA has minimum requirements for income and debt, but lenders may add additional requirements, as well. VA loans are one of the few $0 down payment loan programs, along with USDA loans.

USDA Loans

If you’re looking for a loan as a first-time homebuyer, the U.S. Department of Agriculture has a program to help people living in rural areas. If you live in a qualifying area, the USDA offers mortgages with no down payment required. Granted, there can be some restrictions on income, although it depends upon your location. Generally, the population or the area will need to be less than 30,000 people in order to qualify as a rural area. And, if you don’t intend to put any money down, this will be one of several important home buying questions to ask your mortgage broker or lender upfront.

Fannie Mae & Freddie Mac

Fannie Mae and Freddie Mac are government-sponsored organizations that make homebuying more affordable by providing conventional loans with discounts. This could mean that you only have to make a 3% down payment with the help of these organizations.

Keep in mind that, when utilizing Fannie Mae and Freddie Mac for a first-time homebuyer loan, you’ll need to have a good credit score.

Good Neighbor Next Door

If you’re a teacher, police officer, firefighter, or emergency medical technician, you could get a discount of up to half off the price of a new home. The program was created by the U.S. Department of Housing and Urban Development (HUD) to provide access to discounted homes for these vital workers.

It’s worth noting that the homes are in locations that are classified as revitalization areas with lower homeownership rates and household incomes. There are also some restrictions on these properties, including the requirement to continue to live in the home for at least three years. But, if you find a home that you’re interested in, act quickly, as the homes are only listed on their website for seven days.

Dollar Homes

HUD also operates a program in which it sells homes for as little as a dollar. And, while you may find it very difficult to find anything other than a tiny property for that amount, they don’t have many homes available on their site, either. Most homes are more expensive than $1, but they do offer a great value compared to conventional listings, as these are homes that were foreclosures and then acquired by the FHA.

State Programs

While these programs are national, you might be lucky to be in an area where the local government offers assistance to first-time homebuyers. You can see what is available to you by browsing your local government website.

Renovation Loan Programs

If you’re interested in buying a home that needs some renovation, there’s more help available, as well. In fact, there are numerous renovation loan programs to choose from as a first-time homebuyer.

Energy Efficient Mortgages

The Energy Efficient Mortgage program (EEM) can help you buy a larger home while saving money on your bills. Note that the home will need to be assessed to find the cost of energy-saving improvements and to evaluate the savings that can be made each month. Then, if the energy-saving improvements are cost-effective, this amount can be added to the mortgage. While your mortgage payments will be slightly higher, you’ll also be saving each month on your energy costs once the improvements have been completed.

If you’re looking to buy an older home, this can be a great way to save money in the long term while adding value to your home. And, because this can be applied to any mortgage, you can also use it in addition to one of the other loan programs previously mentioned.

203(k) Loans

If you’re looking to buy a home that needs a lot of improvements, the FHA’s 203(k) loan program could be for you. This type of loan considers the property’s value once it has been renovated, which will allow you to borrow the money you need to complete the improvements.

The 203(k) loan can also be a great mortgage product to utilize if you bought a foreclosed home and need to do any renovations or improvements.

HomeStyle

Fannie Mae also offers a loan program to help you buy a home that needs renovations. Similar to the 203(k) loan program, it allows you to complete structural and cosmetic renovations on a new property. It also offers an option for a down payment as low as 3% of your mortgage.

CHOICERenovation

Freddie Mac has a program for homes that need improvement, as well. It also offers low down payment requirements and you can finance renovations for up to 75% of the completed value.

 

Buying your first home is difficult enough, so make the process a little easier by taking advantage of the programs available to you and research these programs to determine which one suits your situation the best. By doing so, you’ll be able to purchase your home at a better interest rate and with a lower down payment and fees.

It’s also essential to note that if you’re self-employed or do a large volume of cash business, the lender will want to verify where your funds are coming from. There will also be far more scrutiny when you have large cash deposits.

As a first-time buyer, you have many choices when it comes to financing. Make sure you do your due diligence before ultimately deciding which financing program is best for you.

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