So, you’re ready to buy your first home…Congratulations! Now it’s time to explore avenues that could help make your road to home ownership as easy as possible. Often, first-time buyers may not realize that there are programs and grants to offer financial help, and you may be eligible for various types of assistance. Here are a few programs you should be aware of:
•FHA. The FHA, which is part of the Department of Housing and Urban Development (HUD), helps low- and moderate-income families borrow money to buy a home. While it doesn’t actually loan the money, the FHA offers lenders a guarantee the loan will be repaid if the borrower defaults. This helps banks and mortgage companies offer loans with competitive rates to borrowers who might not otherwise qualify for a loan.
You can qualify for an FHA loan with less-than-perfect credit, but keep in mind that you are considered “high risk” with a credit score between 500 and 579. This means you’ll have to provide a down payment of at least 10% of the home’s cost. The good news is that if you can get your credit score to 580 or higher, you can take advantage of a lower down payment requirement of just 3.5 percent.
Another great thing is, unlike most home loans, FHA loans also allow funds for a down payment to originate from family and friends or from a governmental agency that provides housing assistance.
•FHA Section 203(k). If you’ve run the numbers to see how much house you can afford and have determined a fixer-upper is best for your budget, the Section 203(k) rehabilitation program may be a good fit. Hud.gov explains, “This type of loan, backed by the FHA, takes into consideration the value of the residence after improvements have been made. It then lets you borrow the funds you’ll need to carry out the project and includes them in your main mortgage.” The down payment for a 203(k) loan can be as low as 3 percent.
•VA Loan. The U.S. Department of Veterans Affairs (VA) helps active-duty military members, veterans and surviving spouses buy homes. The VA guarantees part of the loan, making it possible for lenders to offer some special features. VA loans come with competitive interest rates and require no down payment. You aren’t required to pay for private mortgage insurance (PMI), and a minimum credit score isn’t needed for eligibility. “If it becomes difficult to make payments on the mortgage, the VA can negotiate with the lender on your behalf”, according to va.gov.
(Read: ‘5 Common Myths of VA and FHA Loans’)
•USDA loan. While not well known, the U.S. Department of Agriculture (USDA) has a homebuyer assistance program. While the program focuses on homes in certain rural areas, you don’t need to buy or run a farm to be eligible. The USDA guarantees the home loan. There may be no down payment required, and the loan payments are fixed.
Applicants with a credit score of 640 or higher typically get streamlined processing. With a credit score below 640, you still can qualify for a USDA loan, but the lender will ask for extra documentation about your payment history. Keep in mind that there are income limitations, which can vary by region.
•Good Neighbor Next Door (GNND). The Good Neighbor Next Door program, sponsored by HUD, provides housing aid for law enforcement officers, firefighters, emergency medical technicians and pre-kindergarten through 12th-grade teachers. Through this program, you can receive a discount of 50 percent on a home’s listed price in regions known as “revitalization areas.” Using the program’s website, you can search for properties available in your state. You must commit to living in the home for at least 36 months.
•Energy-efficient mortgage (EEM). An energy-efficient, or “green,” mortgage is designed to help you add improvements to your home to make it more environmentally friendly. The federal government supports EEM loans by insuring them through the FHA or VA programs. “The key advantage of this mortgage is that it lets you create an energy-efficient home without having to make a larger down payment,” according to bankrate.com. The extra cost is rolled into your primary loan. Some improvements you can make include installing double-paned windows, new insulation or a modern heating-and-cooling system.
•Native American Direct Loan. The Native American Veteran Direct Loan program was created in 1992 and has helped Native American veterans and their spouses buy homes on federal trust lands. The VA serves as the lender. If you’re eligible, you won’t be required to make a down payment or pay for private mortgage insurance (PMI). This first-time homebuyer loan also offers low closing costs and a 30-year fixed-rate mortgage.
•Local grants and programs. In addition to the various programs provided by the federal government, many states and cities offer help to first-time homebuyers. Before buying a home, check your state’s or community’s website for information on housing grants and programs available in your area.
See? There are quite a few options to investigate and determine if you qualify. The key is educating yourself on what’s out there, creating a plan, and taking advantage of programs designed with you in mind.
Sources: bankrate.com; hud.gov; va.gov