Buying your first home is an incredible and exciting time. However for many first time homebuyers coming up with enough cash for a decent down payment can be challenging. Luckily, there are various programs available to help prospective homebuyers secure a loan.
Who’s considered a first time homebuyer?
Surprisingly, a first time homebuyer isn’t necessarily someone who’s never purchased a home before. If you or your spouse haven’t owned a home in three years or if you are recently divorced and haven’t owned a home by yourself, you could be considered a first time buyer and therefore qualify for first time homebuyer assistance. It’s important to note that you may not be considered a first time buyer if your income exceeds a certain amount, the property exceeds a certain price range or you plan to buy a rental or investment property.
The Federal Housing Administration offers programs with down payments as low as 3.5 percent. As RPM’s Julian Hebron explains in this article on RealEstate.com, FHA loans feature more lenient terms, such as more flexibility on income, credit scores and savings needed at closing. The one catch is that the buyer is required to pay private mortgage insurance (PMI).
FHA loans require that buyers pay PMI throughout the entire life of the loan at whatever the rate was when the loan was initially closed. This differs from a conventional loan, where buyers can stop paying mortgage insurance typically when they reach 20 percent equity in their home. In the case of FHA loans, PMI extends the life of the loan and can only be canceled if you refinance or pay the remainder of the loan. To learn more about FHA loans, click here.
Do you work in agriculture or are you looking to move to a rural area? The U.S. Department of Agriculture’s Rural Development Guaranteed Housing Loan Program may be right for you. USDA loans require zero down payment, but have specific requirements. First, the property must be in a rural area with a population fewer than 35,000 people. Secondly, these loans are only available to families demonstrating a need, meaning that they currently lack safe housing and have an adjusted income at or below the local limit. For more information on USDA loans, click here.
If you are a veteran, active service member or spouse of the United States military, you may qualify for a VA loan. VA loans are 100 percent financed, which means no down payment is necessary and you won’t have to purchase private mortgage insurance. VA loans offer flexibility on income, credit scores and savings needed at closing. To qualify for a VA loan, you will need to present your Certificate of Eligibility and have a credit score that meets VA guidelines. To learn more about VA loans, click here.
Down Payment Assistance Loans
Many states and counties offer a variety of down payment assistance programs for qualified first time homebuyers. For example, the California Housing Finance Agency offers the Affordable Housing Partnership Program and the California Homebuyer’s Down Payment Assistance Program. While these programs are specific to California, many states have similar programs. Many of these local programs require that buyers complete a home buying class before receiving a grant for their loan, which can range in value. To learn more about loan programs available in your area, click here.
Deciding the right lending option when purchasing your first home can be overwhelming. Reach out to an experienced loan advisor today to discuss your financial needs.