If you’re a first-time home buyer, you undoubtedly have that mix of excitement and fear we all experience. The thrill of owning a house coupled with the anxiety of making sure you can afford it can lead you to the medicine cabinet for a couple of antacid tablets.
Before you pop open the Tums, take a look at the plethora of programs available to first-time buyers. Being able to take advantage of one of these resources will save you money as well as a case of heartburn. The internet offers a lot of information on these programs. A capable lender can lend further assistance.
This is the most traditional type of loan program for first-time buyers. A part of HUD, the Federal Housing Administration (FHA) is a great resource if you’re looking to become a homeowner. Basically, a loan from this organization is insured through FHA, which can result in lower closing costs and low down payments. First-time home buyers can often get a mortgage with a down payment as low as 3.5% of the cost of the house.
- Related: What Is an FHA Loan?
To help those who have served our country, the U.S. Department of Veterans Affairs offers loan programs that are quite appealing, especially for first time home buyers. The benefits of a VA loan include competitive interest rates, small or even no down payment, and ease of qualification – including some flexibility when it comes to your credit score.
Fannie Mae’s 97% LTV Loan
This relatively new program, courtesy of Fannie Mae, which focuses on affordable homeownership for low- and middle-income Americans, gives first-time home buyers the option of putting as little as 3% down on the purchase of a house. This is a major boost for first-time buyers, many of whom, without an existing home to trade up from, struggle to save up the traditional 20% down payment that most conventional mortgages require.
Keep in mind that, because a down payment is meant to protect the lender, such low-down-payment loans require private mortgage insurance (PMI). PMI runs an average of 0.5% to 1% of the total loan amount, and can be paid upfront or monthly. You can visit the Fannie Mae website for more options for new and existing home buyers.
Freddie Mac First-Time Home Buyer Loans
Similar to Fannie Mae, Freddie Mac works within the secondary mortgage market to make home buying affordable for more Americans. A variety of mortgage programs sits under the Freddie Mac umbrella; many are ideal for first-time buyers.
Among these are the Home Possible Mortgage, which provides flexible credit terms and low (3% to 5%) down payments, and the Affordable Merit Rate Mortgage, designed for borrowers with credit challenges. Be sure to research all of the mortgage programs within Freddie Mac for eligibility and borrower responsibility.
The United State Department of Agriculture (USDA) provides a variety of loan options for those purchasing homes in rural areas. Property and income eligibility requirements differ by state. It’s possible to qualify for a 100%, no-money-down loan backed by the USDA, and interest rates are often lower than those found in conventional loans, according to the USDA.
- Related: USDA Loans: Not Just for Farmers
In addition to the above-mentioned programs, individual states have their own resources for first-time home buyers. For example, in Ohio, the Grants for Grads program awards borrowers who have obtained at least a two-year college degree. Georgia offers the Dream Program, a 30-year fixed rate first mortgage for buyers with a household income totaling no more than $69,000 for one or two people. The Energy Efficient Interest Rate Reduction Program in Alaska applies to new or existing energy-efficient homes.
Check with the state in which you plan to buy your first home to see what options are available to you. Every state also has a housing finance agency, which may offer low-down-payment loans and other help for first-time home buyers; you can look up your state’s agency here.
No matter the type of first-time home buyer program you seek, be sure to do your homework. Visit the sites of the programs to learn both the pros and cons and any criteria that determine your eligibility. Be sure that the loan rates, money down, monthly payments, and other requirements are within your budget. In addition, ask your lender about the programs that interest you to get professional guidance in making this very important decision.