Types of Home Loans for First-Time Buyers
Depending on personal circumstances, first-time home buyers may have many loan options.
FIRST-TIME HOME BUYERS ARE OFTEN DETERRED FROM THE TRADITIONAL MORTGAGE PROCESS, WHERE A STRONG CREDIT HISTORY AND BEEFY SAVINGS ARE OFTEN THE STARTING POINTS FOR SECURING A COMPETITIVE MORTGAGE RATE.
However, there are many non-traditional loan sources for first-time home buyers, including grants and financial assistance that can make buying your first home far more cost effective.
As a general rule, the government considers a first-time home buyer as someone who hasn’t owned a home (or interest in any home) in the last three years.
If you qualify as a first-time home buyer, assistance comes in many forms and can apply to down payments, closing costs, and even tax credits. Below, we offer an overview of the various options and programs:
If you need help covering the down payment, you may be able to get down payment assistance (DPA) through a grant — which doesn’t require repayment — or a DPA loan, which can include a second mortgage or deferred payment loan.
- VA loan: The federal government offers VA loans to service members, veterans, and surviving spouse of veterans, with
generous terms that require little or no down payment or PMI.
- Good Neighbor Next Door: Teachers (pre-K through 12th grade) and first responders may qualify for the Good Neighbor Next Door program, which provides 50% off certain HUD properties. The properties are often affordable homes that have foreclosed.
- FHA loan: An FHA loan helps first-time home buyers who have poor credit, allowing them to put down as little as 3.5% as a down payment.
- USDA loan: The U.S. Department of Agriculture offers home buyers in rural areas financial assistance, providing up to 100% financing. These loans are not restricted to farmers, just those who live in certain targeted rural areas.
- Fannie Mae and Freddie Mac: These government-backed agencies work with various lenders to offer loans that require a reduce down payment. With Fannie Mae’s HomePath program, first-time home buyers can purchase a home with as little as 3% down, with certain closing costs also covered by the program.
- State and local loans: Many government home buying assistance programs are executed through state and local programs. To find an updated list of programs in your area, consult the HUD website: www.hud.gov.
Thanks for checking out the blog.
Joe Breslin, CFP®