March 29th, 2019 8:12 AM by Jackie A. Graves, President
First time home buyers are so critical for the housing industry.
So much so that various financial incentives and loan programs are developed
just to change a renter into an owner. These programs can be national ones such
as Fannie Mae and Freddie Mac first time home buyer programs, to local and
county governments, which can provide grants and forgivable loans to help first
time buyers take the leap.
The biggest obstacle first time home buyers face is coming up
with the necessary cash for a down payment, closing costs and cash reserves.
Even the FHA program, favored by first time buyers, which has a minimum down
payment of just 3.5% of the sales price can still keep future homeowners on the
With a $200,000 home the minimum down payment amount is $7,000.
There are also closing costs that have to be considered plus funds for an
insurance policy, property taxes and impound accounts. When everything is all
said and done the minimum cash to close could exceed $10,000 or more. That’s a
number that first time buyers look at and it can seem a bit formidable for
For those who buy their second or third home the down payment
and closing costs are typically paid for with proceeds from the sale of the
previous property. Once someone gets in a first home, the real estate wheels
begin to turn.
First time home buyer grants are free money. A grant can be used
to cover the down payment and contribute toward closing costs. Typically, the
grant does not have to be paid back as long as the buyers own the home for at
least three years. Second liens are also available to help out with a down
payment. These funds are in the form of a loan and not a grant. Again, if the
owners keep the home for at least three years, the loan is forgiven.
But for those who have owned a home before and are looking at
buying another but are looking for the type of loan available for first time
buyers, there is an opportunity to qualify for a first time buyer grant or
loan, even if they’ve owned before. How?
For most of these programs the standard definition of a first
time home buyer applies. To qualify as a first time buyer, the borrowers must
not have owned a home within the past three years. This means someone who owned
a home four or five years ago may still be eligible for down payment assistance
reserved for first timers. How does a lender know if someone qualifies as a
first time buyer? Unless someone paid all cash for a previous home, there will
be a mortgage listed on a credit report. The report will show when the mortgage
was opened and when it was paid off. If three years have passed since the
previous mortgage was retired, the buyers qualify for a first time home buyer
Of course, just because someone qualifies as a first time home
buyer it may not always the best choice. That’s a conversation that needs to be
had between the buyers and their loan officer. But if someone is buying a first
home and is wanting a little financial help with the necessary cash to close,
first time buyer programs more than fill that need.
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