Did you know that first time home buyers have multiple options to help them get the house they need? If you’re a first time home buyer, consider if any of the following programs are helpful to you!
FHA loans have a minimum down payment of 3.5%, which is much more affordable than the typical 20% required by conventional loans. However, because of the lower down payment, you will be required to pay private mortgage insurance (PMI), which can increase your monthly payment as well as add an up-front fee at closing. But FHA loans also have a lower credit score requirement – only 580, compared to the 620 needed for most conventional mortgages. This makes them easier to qualify for if your credit history is less than perfect. If you can afford a 10% down payment, the credit score requirement is lowered all the way to 500. And with flexible income guidelines, many borrowers are able to qualify even if they don’t make a lot of money. This is all because FHA loans are guaranteed by the Federal Housing Administration, which will pay back the lender in the event that a borrower defaults on their mortgage. Because the Federal Housing Administration guarantees these loans, lenders feel comfortable making FHA loans easier to qualify for. Furthermore, another attractive feature of FHA loans is their low mortgage rates.
Conventional 97 Loans
Conventional 97 loans also have a low down payment requirement – just 3%! Similar to FHA loans, this low down payment causes Conventional 97 loans to have private mortgage insurance. However, you can cancel your PMI after you’ve paid off enough of your loan – something that most FHA loans don’t allow you to do. Furthermore, Conventional 97 loans don’t have up-front insurance fees. They do have a 620 credit score requirement, however, making them harder to qualify for if you have poor credit.
Freddie Mac Home Possible and Fannie Mae HomeReady
Both the Freddie Mac Home Possible and Fannie Mae HomeReady mortgage programs require just 3% down and have private mortgage insurance that can be cancelled once you’ve built up enough equity. With Freddie Mac Home Possible, you can use gift funds from a friend or relative to cover 100% of the cost of the down payment! Both types of loans also allow you to use roommate income to help you qualify. Freddie Mac Home Possible and Fannie Mae HomeReady both require you to complete homebuyer education, which is a course that teaches what you can expect as new homeowner and helps prepare you to manage your finances and a mortgage. These loan programs have a minimum credit score requirement of 620.
Lots of people love living in the country, and USDA loans may be an attractive option for homebuyers looking to purchase their own country house. These loans are only available for properties in small towns or rural areas, but are backed or even insured by the U.S. Department of Agriculture. They require 0% down, have low interest rates, cheap mortgage insurance, and can help low-income home buyers. While you can’t use a USDA loan to buy a home in or around an urban area, 97% of land in the United States actually can be eligible for a USDA loan. USDA loans have a higher credit score requirement than other some other programs – 640 – and their private mortgage insurance cannot be canceled.
VA loans are available to members of the military and their spouses as a way of thanking them for their service. These loans have zero down payment required, but unlike other types of low-or-no down payment loans, they do not have any primate mortgage insurance requirement. VA loans also have low rates, lower closing costs, and can even have a lower credit score minimum requirement. The only downside to VA loans is that not every lender is able to issue them, so if you’re eligible for a VA loan and want to pursue one, it’s important to find a lender who is approved to offer VA loans.
Good Neighbor Next Door
The Good Neighbor Next Door program is only open to certain individuals and only applies to select properties, but if you’re eligible and use it for an eligible house, you could get a discount of as much as 50% of the purchase price! That’s quite a substantial discount. The catch is that the house must be in a “revitalization area” and listed for sale by the U.S. Department of Housing and Urban Development. Most of these homes will have been houses previously secured by an FHA loan that were then foreclosed upon, which is important to keep in mind – foreclosed properties sometimes aren’t in the best condition. Furthermore, only teachers, firefighters, law enforcement officers, and emergency medical technicians are eligible to take advantage of the Good Neighbor Next Door Program. Finally, you must commit to living in your new home for a minimum of 36 months. If you qualify for Good Neighbor Next Door, taking advantage of this federal loan program could definitely be worth it!
Down Payment and Closing Cost Assistance
Finally, down payment and closing cost assistance programs are a great way to get help with affording the down payment or closing costs of a home purchase. Down payment and closing cost assistance can be offered as a grant, a forgivable loan (meaning you won’t need to pay anything back providing that you meet certain requirements), or a loan to be repaid. Assistance can sometimes be used to purchase points and get a lower interest rate, thereby getting a lower monthly payment! These programs exist at a federal, state, and local level, which means you may have multiple options. Typically, these programs have income requirements that you need to qualify under, and often require homebuyer education. Finally, you often have to work with an approved lender in order to take advantage of down payment and closing cost assistance.
Being a first time homebuyer can be daunting, but know that you have options! If you’re looking for a mortgage, you can compare lenders and rates right here on RateZip.