March 28th, 2019 8:19 AM by Jackie A. Graves, President
FREEHomePurchaseAnalysis FREEFHAHomePurchaseAnalysis FREEVAHomePurchaseAnalysis
programs throughout the country help hopeful homeowners even if they are low- to
moderate-income individuals. These programs also assist Americans in securing mortgages when they don’t have the best credit scores. Some even
cater to specific professions like those in law enforcement, education and the
First-time homebuyer programs help people get
low-interest mortgages when they can’t secure them elsewhere. Because
government organizations back many of these loans, qualification requirements
are a lot less strict than they are for conventional loans.
Below, we’ll explore a few programs to help you decide
which is best for you.
The Federal Housing Administration (FHA) works with local
lenders nationwide to offer mortgages to people who may not qualify to get them
anywhere else. Because the government insures portions of these loans, lenders
feel more comfortable offering mortgages to people without the strongest credit
history. It’s a solid option among the various first-time homebuyers programs.
loan qualification is not as stringent when it comes to credit score.
In fact, a credit score of around 580 can earn you an FHA loan with a 3.5% down
payment. Down payments for conventional mortgages usually hover above 20%. In
addition, FHA loan interest rates dip considerably lower than the rates for
Some lenders won’t even turn you away if your debt-to-income
ratio (DTI) stands as high as 55%. If at least two years have passed
since you’ve experienced bankruptcy, you shouldn’t have a hard time qualifying
for an FHA loan either.
However, this doesn’t mean an FHA loan — or any loan for
that matter — is a risk free solution, even for those exploring first-time
homebuyer programs. Because you’ll likely be making a small down payment,
you’ll be required to pay mortgage insurance premiums, the FHA’s version of
insurance (PMI). This type of insurance exists to protect the lender
in case you default.
You’ll also need to pay closing costs. However,
closing costs for FHA loans tend to be lower than they are for traditional
mortgages. And unlike many conventional mortgages, FHA loans carry no
prepayment penalty. This means you can make larger monthly payments and pay off
the loan as quickly as you can without facing any repercussions.
You can also roll over the upfront insurance fee and down
payment into the loan amount. However, you’ll end up paying more in the long
run. You’ll also need to make a down payment around 10% if your credit score
sinks below 580. But if you’re having trouble paying upfront costs, down
payment assistance programs can help.
And unlike several conventional mortgage companies,
FHA-backed lenders let you pay closing costs and down payments with gift money.
But make sure the person giving you this money signs a short letter explaining
that he or she doesn’t expect the money back.
FHA loans typically
suit first-time homebuyers who have trouble securing loans elsewhere because of
strict qualification requirements. But sticking to a solid repayment plan can
help Americans with lower credit scores not only pay off a mortgage with a
particularly generous interest rate but also boost their creditworthiness in
Among the options of special first-time homebuyer
programs, the United States Department of Agriculture (USDA) issues
low-interest mortgages to low-income Americans who wish to live in rural
areas. However, the USDA broadly defines “rural,” so even some suburban
locations fall under its radar.
USDA loans usually carry low-to-no down payments. Sound
too good to be true? Well, the USDA insures local lenders to a certain
amount. Thus, the government agency takes on less risk offering mortgages with
The USDA offers two types of loans for first-time
homebuyers. To qualify for
a guaranteed USDA loan, you can’t make more than 115% of the median income
for the designated area where you intend to live.
A credit score around 680 typically helps you secure a
guaranteed loan with a low interest rate and zero down payment. It may also put
you through the streamlined process. This means you’ll skip most of the
paperwork associated with conventional mortgages. If your credit score hangs
below 680, you may need to make a larger down payment of about 10%.
With a Direct USDA loan, the government funds your
mortgage directly. In other words, your lender becomes the USDA. These loans
serve low- to very-low-income individuals and families. Income limits depend on
location. In addition, you must be the primary resident of the home for which
you’re taking out a USDA loan. You can’t make any income from the property or
use it for any commercial purposes.
Because USDA loans require low down payments, you’ll need
to take out insurance. The upfront premium can range from 1% to 2% of the
loan amount. You’d also owe a monthly premium of about 0.35% to 0.40%. So let’s
say you take out a $200,000 loan. You’re required to pay a 1% upfront insurance
fee and a 0.35% premium throughout the year. In this case, you’d pay $2,000
upfront and a monthly premium of $58. However, you can factor the upfront
premium into the mortgage amount. In this case, you’d transfer the fee into the
loan and thus turn it into a $200,200 mortgage.
Qualified borrowers can take out 15- or 30-year
mortgages with fixed-interest rates. To learn more about
qualifications, visit the USDA loan website at www.rd.usda.gov. An interactive
map displays designated areas and income limits for each.
The Department of Veterans Affairs (VA) issues loans to
qualifying military members including first-time homebuyers.
VA loans usually
carry lower interest rates than their conventional counterparts. VA-partnered
lenders also offer loans with little-to-no money down. To qualify, you must
meet certain requirements set by the VA and perhaps some set by specific
lenders. You may be eligible for a VA loan if you’re:
If you qualify for a VA loan, you can shop around for
different options. You can find fixed-rate or adjustable-rate
mortgages (ARM) with varying repayment terms ranging from 15 to 30
In addition to favorable interest rates, VA loans offer
some distinct advantages. For example, they require no PMI and carry no
prepayment penalty. The VA also sets limits to how much lenders can charge in
However, you will be required to pay a VA Funding fee
that varies depending on your military status. It can range from 1.25% to 2.15%
for most branches of the military and from 1.5% to 2.24% for Reserve and
National Guard personnel. It can roll over into your loan amount at
In addition, you’ll encounter some of the usual fees such
as appraisal and recording fees. If you’re struggling to make payments,
however, the VA counseling programs can help.
If you’re considering first-time homebuyer programs, it’s
worth looking at Native American Direct Loans (NADL), which the VA backs for
homes on Federal Trust Land. To qualify, you must meet the basic requirements
for a traditional VA loan in addition to other terms. These requirements state
The VA sets the interest rate for NADLs, and they’re
usually available through private lenders offering 30-year mortgages. The
funding fee stands at 1.25% of the loan amount.
Teacher Next Door (Good Neighbor Next Door)
Neighborhoods owe a lot to their teachers, police
officers and other public servants. The Teacher Next Door program helps these
people stay in their local communities by helping them pay off their homes. The
initiative is also known as the Good Neighbor Next Door program. It’s sponsored
by the U.S. Department of Housing and Urban Development (HUD).
Teachers, police officers, firefighters and emergency
service technicians can get 50% discounts off the list price for homes in
“revitalization areas.” Those areas are designated by the U.S. Department
of Housing and Urban Development (HUD).
However, recipients must agree to live in these homes as
their primary residence for at least 36 months. The program is also highly
competitive. Eligible homes are listed on the Teacher Next Door program’s
official website for only a few days.
So the first step is to get preapproved. Afterward, a
licensed Teacher Next Door agent helps you find listings available in your
Qualified teachers must work full time in a
state-accredited public or private school serving local children in grades K
through 12. Police officers must work full time for a law-enforcement agency
affiliated with a governmental body or tribal government. Firefighters and EMTs
must be employed by a fire department or an emergency response unit in the area
where the home they’re interested in is located.
Teacher Next Door claims it will help you buy any home on
the market if you don’t win a bid of if there aren’t any eligible homes in your
area. Your agent will negotiate the lowest price and handle all the paperwork
The program also provides benefits and grants to public
service professionals like nurses to buy their first homes. For example, the
program can help medical professionals acquire their first mortgage with low
down payments and no application fees.
Mortgage Lender First-Time Homebuyer Programs
Freddie Mac and Fannie Mae are public
government-sponsored enterprises that serve as two of the biggest players in
the mortgage industry. They even work with local lenders nationwide to offer
mortgages to low-income individuals who don’t have the most solid credit
Fannie Mae, for example, offers low-interest loans
through several lenders. They’re meant for low- to moderate-income individuals.
Down payments for these loans can sink to as low as 3%, and you can get one
with a credit score as low as 620. Higher credit scores will help you secure
even better rates. You may also be able to cancel mortgage insurance after your
home equity reaches 20%. Fannie Mae’s HomeReady program also helps
low-income individuals qualify for their first mortgage. Freddie Mac aims to
meet affordable housing requirements set by the Federal Housing Finance Agency
In addition, you should reach out to local banks ranging
from small ones to major franchises. Many offer programs that help first-time
homebuyers qualify for mortgages.
State and Local First-Time Homebuyer Programs
No matter what state you live in, you should look into
your local government housing agency to see if it has any first-time homebuyer
programs for which you might qualify. The State of New York Mortgage Agency
(SONYMA), for instance, offers down payment assistance and other tools and
resources for low- to moderate-income first-time homebuyers. The agency
considers a person who has not owned a principal residence in at least three
years to be a first-time home buyer.
Some state housing programs will partner with mortgage
lenders to offer 30-year fixed rate mortgages with competitive rates for
qualifying applicants. In many cases, you can even combine these mortgages with
other subsidies and grants.
HUD Dollar Homes
Property in HUD’s dollar program consists of
single-family homes. The FHA (a division of HUD) acquired these homes through
foreclosure. When the FHA can’t sell a particular property within six months
after foreclosure, it falls into the program.
The FHA then sells such a home for $1 to local governments,
faith-based organizations and nonprofits helping low-income families find
affordable housing. In order to land the deal, however, you’d have to contact
the organizations that participate in the program. You’d also have to comply
with the requirements they set.
The competition is fierce. Back in 2013, the local
government of Gary, Indiana, made headlines when it put a few homes in the
program. Within the first day, it got hundreds of applications. The town then
chose 12 out of 25 finalists in a lottery the following month.
But if you’re feeling lucky, you can visit the HUD
website. No new listings were available at the time of this writing. Even
though you won’t find homes with $1 price tags, you should look into the HUD
and local government agencies to locate first-time homebuyer programs.
Tips for Buying a Home
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