“Unlocking Homeownership: First-Time Homebuyer Programs Explained”

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What Is a First-Time Homebuyer Program?

First-time homebuyer programs are designed to help new buyers overcome financial barriers to homeownership. These programs can include special home loans with low down payment requirements, low- or no-interest loans for down payments or closing costs, and other resources provided by state and local governments.

Types Of First-Time Homebuyer Programs

There are several major types of first-time homebuyer programs to choose from:

Government-Insured Mortgages

These home loans are backed by the federal government and can be ideal for first-time homebuyers:

• FHA loans: These loans have looser borrowing requirements compared to conventional mortgages and allow for a down payment as low as 3.5%.
• USDA loans: These low-interest loans do not require a down payment and are geared toward low-income rural and suburban homebuyers.
• VA loans: Available to service members and veterans, these loans offer lower interest rates and require no down payment.

Low Down Payment Mortgages

First-time homebuyers may qualify for conventional mortgages with low down payments:

• Fannie Mae Standard 97 Loans: These loans allow for a 3% down payment and require private mortgage insurance. A strong credit score can help reduce overall loan costs.
• Certain conventional loans: Some lenders offer conventional loans with a 3% to 5% down payment, though credit score requirements may be stricter.

Programs That Offer Discounted Mortgage Rates

Some programs require low down payments and offer reduced mortgage rates to qualifying first-time homebuyers. For example, Fannie Mae’s HomeReady Mortgage is designed for creditworthy low-income buyers who can put 3% down and offers low mortgage rates and reduced insurance costs.

Down Payment Assistance Loans

If you need help with your down payment, consider taking out an additional loan separate from your mortgage. These loans generally fall into one of three categories:

• Deferred payment loans: Repayment is not required unless you refinance, sell your home, or move.
• Low-interest loans: These work like a second mortgage, with repayment typically beginning immediately.
• Forgivable loans: Usually interest-free, repayment is only required if you move before paying off your mortgage.

No-Closing-Costs Loans

Closing costs can range from 2% to 5% of the home price and are due at the time of sale. Some mortgages allow you to fold these costs into your loan, reducing upfront fees but increasing interest payments. Some loans have no closing costs, excluding taxes, but be sure to read the fine print for any additional fees or higher interest rates.

State or Local First-Time Homebuyer Programs

Check for resources available in your state. Some offer secondary loans to help with down payments and closing costs, such as California’s MyHome Assistance program and Tennessee’s Great Choice Plus program.

Employment-Based Homebuyer Programs

Some employers offer home-buying assistance. For example, the Good Neighbor Next Door program provides a 50% discount on homes for law enforcement, primary school teachers, firefighters, and emergency medical technicians who live in the home for at least three years.

What Is a First-Time Homebuyer Grant?

Unlike loans, grants do not need to be repaid. They provide free money to help you buy your first home and can be available through state and local governments or nonprofit organizations.

Types Of First-Time Homebuyer Grants

There are several types of first-time homebuyer grants:

• Down payment assistance grants: The National Homebuyers Fund offers grants worth up to 5% of the loan amount for low- and moderate-income buyers.
• Grants for closing costs: The National Homebuyers Fund grant can also cover closing costs. Fannie Mae’s HomePath program may reimburse up to 3% of closing costs.
• Grants for home repairs and renovations: Some grants can be applied to home inspections and rehabilitation costs.

How to Qualify for First-Time Homebuyer Benefits

Eligibility criteria vary by program but may include:

• Income: Some programs are designed for low- to moderate-income buyers.
• Residency: State or local governments may offer resources to residents who are first-time homebuyers.
• Credit: Credit score requirements vary, but most programs require at least a “fair” credit score (580 to 669 for FICO® Score☉ models).
• Employment: Certain benefits are reserved for homebuyers in specific industries. Conventional mortgage or government-backed loan applicants will need to provide employment history.

To find specific grants and benefits, search online for first-time homebuyer programs in your state. You can also find resources through the National Council of State Housing Agencies or by connecting with a HUD-approved housing counselor.

Frequently Asked Questions

• Do I Qualify as a First-Time Homebuyer?
• What Credit Score Is Needed for First-Time Homebuyers?
• What Is the $25,000 First-Time Homebuyer Grant?

The Bottom Line

A first-time homebuyer program could unlock a grant or loan that allows you to purchase your first property. Resources are available from state and local governments, nonprofit organizations, and certain mortgage lenders. Taking the time to apply may be well worth it in the end.

A healthy credit score could make you a more attractive applicant. Start by reviewing your credit report and credit score for free with Experian.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you every step of the way!

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