If you’re tired of renting, it may be time to purchase your first home. Being a first-time homebuyer is nerve-wracking, but many of the myths about buying a home just aren’t true.
You don’t need a perfect credit score, and you don’t need 20% for a down payment. Many first-time homebuyer programs, grants, and down payment assistance programs are available to help you secure the financing you need to purchase your first home.
Federal Housing Administration (FHA) Loans
FHA loans are a suitable option for first-time buyers with poor credit, or anyone who doesn’t have 20% to put toward a down payment. These loans are backed by the U.S. Department of Housing and Urban Development (HUD).
FHA Loan Requirements
If your credit score is at least 580, you qualify for minimum down payment of 3.5%. If your credit scores are between 500 and 579, you qualify with a 10% down payment. However, you should expect to receive a higher interest rate.
Here are some of the other requirements:
- Have a steady employment history of at least two years
- You plan to occupy this home as your primary residence
- You’re prepared to get an FHA property appraisal
You can qualify for the FHA loan program even if you filed for bankruptcy, as long as it’s been at least two years. However, you should expect to pay for private mortgage insurance (PMI). However, you should expect to pay private mortgage insurance for the duration of the FHA loan if your LTV ratio is less than 90% at the time of closing.
If it’s lower, you’ll have to pay for 11 years (unless the home loan is paid off earlier). These proceeds are used to cover the lender if the borrower defaults on the loan.
FHA loan limits vary by area. You can view the loan limits for your area here.
Energy Efficient Mortgage Program
With this program, you can roll the cost of any energy-efficient improvements into your FHA mortgage. This won’t change your minimum down payment requirements, and the money financed for the EEM package won’t affect your loan limit. You’ll need to work with your mortgage lender to determine how much of an EEM benefit you qualify for.
With Fannie Mae, you can roll the cost of any energy-efficient improvements into your FHA mortgage. This won’t change your minimum down payment requirements, and the money financed for the EEM package won’t affect your loan limit. You’ll need to work with your lender to determine how much of an EEM benefit you qualify for.
HomeReady Mortgage Program
The HomeReady Mortgage program is ideal for first-time homebuyers who have a minimum credit score of 620. The minimum down payment is 3%, and PMI is required. If your credit score is 680 or higher, you may qualify for more competitive rates.
HomePath Ready Buyer Program
With this program, you can get up to 3% of the purchase price in closing cost assistance toward the purchase of a HomePath property. To qualify, you’ll need to complete a homebuyer education course.
You’re also limited in what you can buy. This program is only for HomePath properties, which are foreclosed homes owned by Fannie Mae.
97% LTV Mortgages
This mortgage loan could be the right option for first-time buyers that don’t have 20% for a down payment. 97% LTV mortgages from Fannie Mae allow you to make a down payment of only 3%.
You can only take out a fixed-rate mortgage for this type of loan. And the home you purchase must be your primary residence and not an investment property.
Freddie Mac is another entity that offers competitive mortgage products to consumers. Their most popular program for first-time homebuyers is the Home Possible mortgage. This mortgage is ideal for low to moderate-income borrowers in underserved communities.
Home Possible Mortgages
Buyers can choose from the 95% LTV (Home Possible) or 97% LTV (Home Possible Advantage) options. This conventional loan is not backed by the federal government, but it comes with flexible terms and low down payment minimums.
Plus, you can cancel your PMI once the loan balance reaches 79% of the home’s appraised value. And even if with no credit or bad credit, you may be eligible for a mortgage with as little as 5% down.
United States Department of Agriculture (USDA) Loans
Considering a home in a rural area? You may qualify for 100% financing through the USDA loan program.
There is no required down payment with this program, and the credit requirements are much lower than what other lenders look for. You can use this tool from the USDA’s website to see if your area qualifies. There’s a 2% guarantee fee with a USDA loan, but it can be rolled into your mortgage loan and spread across your monthly mortgage payments.
Veterans Administration (VA) Loans
If you’re an active service member, veteran, or surviving spouse, you may be eligible for a mortgage through the VA Home Loan Program.
VA loans are perfect for first-time homebuyers because the upfront costs are so low. There’s no down payment required, and you don’t have to pay for PMI. There is no minimum credit score requirement for a VA loan. However, most mortgage lenders want to see a FICO credit score of at least 580.
Native American Direct Loan
If you’re a Native American veteran looking to purchase your first home, this program may help you get the financing you need. Loans come with no down payment, minimal closing costs, and no PMI.
They are also much easier to qualify for than traditional mortgages. Your home must be located on Federal Trust Land, and the mortgage is for a 30-year term at a fixed rate.
HUD’s Good Neighbor Next Door (GNND) Sales Program
Do you work in a public service role such as law enforcement, teaching, or the fire department? Then you can receive 50% off the HUD appraised value of select homes through HUD’s GNND Sales program.
The only catch is that the home must be located in a revitalization area, and you must commit to living there for 36 months. You also need to act fast because homes are only listed for sale during a seven-day window.
HUD Dollar Homes Program
First-time homebuyers should also check out Dollar Homes offered by HUD. These are foreclosed FHA properties that have been on HUD’s website for over six months. The options may be limited, but you never know when a good deal may appear.
HUD 203(k) Rehab Loans
Do you have your eyes set on a fixer-upper? Check out HUD 203(k) loans, which are backed by the FHA and give additional funding to homebuyers who want to complete renovations. Instead of taking out a second loan, you can roll the renovation costs into the mortgage.
See also: How to Buy a HUD Home (And When You Should)
Other Homebuyer Grants and Programs
You can visit HUD’s website to learn more about programs that are available for first-time homebuyers in your area. Once you’ve selected your state, you’ll be redirected to a list of programs that you may qualify for.
National Homebuyers Fund
The National Homebuyers Fund (NHF) is available for low-income homebuyers that need down payment assistance. Once you find a participating lender, the NHF will provide a grant for up to 5% of the loan amount.
You don’t have to repay the grant, but there are income requirements based on the current housing market and your location. Your lender can provide you more information and help you determine if you qualify.
Employer-Sponsored First-Time Home Buyer Programs
Some employers are now offering housing incentives to help employees with down payments and closing costs. Your employer or labor union may give you a grant that’s forgivable over time. Check with your manager to see if they offer any kind of down payment or closing cost assistance.
Local Grants to First-Time Home Buyers
There are many state or local government grants available for first-time homebuyers. And many of these don’t require any repayment if you live in your home for a certain time frame. Contact a real estate agent and check with both your state and county to learn more about what options are available to you.
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