Who Qualifies for the First Time Home Buyer Programs?
Do you qualify for any of the First Time Home Buyer Programs? The definition of a “first time buyer” isn’t restricted to people buying their first homes. According to the Department of Housing and Urban Development, it also includes the following:
- A person who has not owned their principal residence for at least 3 years.
- A single parent who previously co-owned a home while married.
- A homemaker who previously owned with a spouse, but no longer receives financial support from that spouse.
- A person who has only owned a residence not affixed to a permanent foundation, such as a mobile or trailer home.
- This allows many people who wouldn’t assume that they qualify for a first time mortgage to take advantage of the benefits offered to those purchasing their first home.
Buyers using the First Time Home Buyer Programs can often be at a disadvantage to other buyers, due to having low funds, student debt, or other financial issues. Thankfully, being a first time buyer has some benefits too, such as being offered lower rates or smaller down payments on a home loan.
Take this Survey to find out if you qualify for any of the programs available to you through the Federal Government.
How to Choose the Best Lender for Your First Home Purchase
Finding the right lender depends on a number of factors, of which the interest rate is only one. But make sure the lender is qualified to offer First Time Home Buyer Programs. Here are some other things to look at when weighing up the various lenders:
Loan size: A basic requirement any borrower should expect of their lender is that they can offer the right loan amount. If you need a $250,000 loan, then there’s no use in going with a lender that will only approve $200,000. On the other hand, if you’re approved for $300,000, it’s important to be aware that you don’t have to spend that exact amount. You can still purchase a home for $250,000, and only borrow the amount you need.
APR: The first thing many borrowers look at when comparing lenders is the interest rate. While this is important, the best thing to look at is the APR. The Annual Percentage Rate, or APR, includes the interest rate plus processing fees and points, and therefore gives a more accurate picture of what you’ll be paying the lender each year. If you want to know your total cost, APR is the place to look.
Closing costs: Once your mortgage is approved, you will need to go through what’s called a closing process. At this stage, lenders can add any number of fees, including origination, surveying, title, and third-party fees. When you apply for your mortgage, it’s worth checking which lenders are willing to waive or discount these fees.
Loan terms: The term (or duration) of your loan can have a big impact on your APR and total loan amount, and therefore it’s important to select a term that suits your needs. The shortest term is usually a 15-year mortgage, though it is possible to find 10- or even 8-year terms, which include higher monthly payments but a lower interest rate. The longest term is usually a 30-year mortgage, which includes lower payments but a higher rate.
Customer service: Lastly, don’t forget the importance of customer service. As you go through the process of buying your first home, you’ll undoubtedly have a lot of questions, and it’s important to go with a lender that is willing to spend time on your application and offer the best deal to suit your specific needs. Many lenders now offer online applications, making it less costly and more convenient to apply for a loan, as well as personal loan agents and online chat applications.
The Advantages of First Time Buyer Programs
There are 2 major advantages of being a First Time Home Buyer:
- Qualifying for lower down payments through government-backed lending programs or offers from individual lenders
Many first time home buyers find that down payments are the biggest obstacle to purchasing a home. Using a median house price of about $250,000, and a typical minimum down payment of 20%, we find that most lenders expect borrowers to pay at least $50,000 as a down payment on their home – and many people just don’t have that sort of money lying around. Thankfully, some lenders offer home loans to first time buyers for down payments of as low as 3%.
There are also the first time home buyer programs that are government-backed FHA loans – these Federal Housing Administration (FHA) loans guarantee down payments of 3.5% for borrowers with at least a 620 credit score, and down payments of 10% for borrowers with as low as a 580 credit score. To qualify for an FHA loan, the borrower must purchase Private Mortgage Insurance (PMI), which protects the lender in the event the borrower defaults on a portion of the loan.
- Being able to deduct mortgage-related payments from your tax bill
Fortunately for first time buyers, certain mortgage expenses are tax deductible.
For example: you can deduct interest, provided your mortgage is secured by your home and is worth less than $1 million; and you can deduct real estate taxes. Unfortunately, PMI payments stopped being tax-deductible as of 2017, but this may change again in the future. If you’re a first time buyer, it’s worth consulting a tax specialist about how you can use your loan payments to reduce your tax bill.
The Short of It
Being a buyer who takes advantage of First Time Home Buyer Programs doesn’t necessarily mean you’ll need to make a huge down payment or that you’ll be taken advantage of by lenders. As long as you have a decent credit score and understand your rights before beginning the process, you should be able to come away with a mortgage to suit your needs – and that won’t drain your bank account on day one. When comparing lenders, don’t forget to look at all angles, such as terms, APR, and closing costs. And always ask what they can do for you as a first time buyer.
The process of purchasing your first home can be daunting and expensive, and it will likely include many financial situations you’ve never encountered. Luckily, the federal government and Florida state government have stepped in and created programs specifically for first-time home buyers. Even if you don’t have much to put toward a down payment, or you need a low interest rate, these loans and mortgage programs are great options that are worth looking into.
Pros and Cons of First Time Home Buyer Programs
FHA Loans
Pros
Low down payment requirements
Don’t need a high credit score for approval
Cons
Larger down payment needed for those with a credit score beneath 580
Eligibility
As little as a 3.5% down payment
Credit score must be 500 or above
Best For
Those who don’t have a great credit history
Don’t have money for a down payment
The Federal Housing Administration of the U.S. federal government backs FHA loans, though you’ll actually apply for one through an outside lender. These mortgages are a fantastic option for anyone looking to purchase a first home. That’s because you’ll only need to put 3.5% of your new home’s value at the time of purchase. Compare this to a conventional loan that requires a 20% down payment.
However, to receive this perk in its full glory you must have a FICO® credit score of 580 or higher. If not, you’ll be required to make a 10% down payment, which still represents a partial upgrade over a conventional mortgage. But even with this credit score requirement, an FHA loans falls under the category of easier-to-get mortgages.
VA LOANS
Pros
- Can have up to 100% loan coverage of your home’s value
- Usually come with lower closing costs than conventional loans
- No private mortgage insurance
Cons
- The application process can be drawn out
- Must pay a VA funding fee
Eligibility
- Must be a current or former military member
- Or a member’s spouse or another eligible beneficiary
- Must have a credit score of 620 or higher
Best For
- Veterans with little monthly income and savings for a comfortable down payment
The Department of Veterans Affairs insures VA loans, but third-party mortgage lenders actually issue them. These were created to help veterans who may have had enough monthly income to afford a mortgage but not enough savings to back up a down payment. In turn, VA loans do not call for any sort of down payment, meaning your new home’s value can be completely covered by your mortgage. This is essentially impossible to replicate outside of a VA loan, making it all the more valuable of a proposition.
In most situations, you need a 620 FICO®credit score to secure an approval for a VA loan. On top of this, you need to pay a VA funding fee, which will range anywhere from 1.25% to 2.4% of your home’s value depending on whether or not you choose to pay a down payment.
Aside from the funding fee, there’s almost no other extraneous costs to deal with on a VA loan. As a matter of fact, you won’t have to pay the typically obligatory private mortgage insurance because the government will back that half of your risk. You’ll also likely find that your closing costs will be cheaper than conventional and other mortgages, which should help you shore up your finances in the short term.
USDA Loans – First Time Home Buyer Program
Pros
- Veterans with little monthly income and savings for a comfortable down payment
Cons
- If you qualify for a conventional mortgage, you can’t get one
Eligibility
- Cannot make more than 115% of the adjusted U.S. median income
- Must purchase a home within an eligible rural area
Best For
- Low-to-mid income Americans looking to live in a rural or suburban area
A United States Department of Agriculture, or USDA, loan is legally known as a “Section 502 Single Family Housing Guaranteed Loan Program.” These mortgages are specifically intended to attract borrowers to move to rural (or at the very least, semi-rural) areas of the country. Simply find a single-family home that’s approved by the USDA to be eligible for a loan, and you’ll be free to apply.
Perhaps the most attractive feature of this mortgage is the fact that it completely eliminates the need for a down payment. But if your credit score falls a bit lower on the FICO® spectrum, you may have to pay a down payment of around 10%.
To make things even better, a USDA loan doesn’t require applicants to have a strong credit score and history. However, because of this, you will not be eligible for a USDA loan if your income level is higher than 115% of the current U.S. median income or if you have qualified for a conventional loan.
Good Neighbor Next Door – First Time Home Buyer Program
Pros
- Get a flat 50% discount on the value of your new home
- After three years, you can sell the home and keep all equity
Cons
- Not available to most people and in most areas
- You’re required to live in the home for at least three years following purchase
Eligibility
- Must be a police officer, firefighter, emergency medical technician or a pre-K to 12th grade teacher
Best For
- Teachers or emergency personnel with little in savings
The Good Neighbor Next Door Program is one of the more distinctive federal mortgage offerings on the market. It’s in place solely for emergency personnel and pre-K through 12th-grade teachers. Although not technically a loan, it allows these individuals to receive a 50% discount of the purchase price of a new home. To actually pay for the home, you could get a conventional, VA or FHA mortgage or pay cash.
There are some preconditions you must follow in order to remain eligible for this program, though. In order to save half off your home, it must be located within a “revitalization area” as titled by the Department of Housing and Urban Development (HUD). Furthermore, you must agree to make it your primary living residence for at least the next three years. The good news is that if you meet this term, you can sell the home if you choose and hold onto any equity and profit.
Fannie Mae/Freddie Mac – First Time Home Buyer Program
Pros
- Very low down payment stipulations
- Little to no credit needed for approval
- Many loan styles available
Cons
- Could come with higher interest rates
Eligibility
- In some cases, no income requirements in under-served areas
Best For
- Anyone who is looking for a low down payment loan option, but doesn’t qualify for any of the above options
Freddie Mac and Fannie Mae are mortgage lenders that were created by the federal government, and each have a number of first-time home buyer options. While they’re technically two different entities, they offer very similar benefits, each of which are more than suitable for anyone buying his or her first home.
The HomeReady® loan from Fannie Mae need only be accompanied by a 3% down payment. This makes it a great choice for anyone who’s strapped for cash, has a FICO® credit score as low as 620 and makes an income at or near the U.S. median. With a HomeReady® loan, you must have private mortgage insurance at the time of purchase, but once you’ve accrued 20% equity in your new home, you can cancel it.
On the other hand, Freddie Mac offers Home Possible® mortgages with down payments as low as 3%. The Home Possible loan comes in 15- to 30-year fixed-rate and 5/5, 5/1, 7/1 and 10/1 adjustable-rate terms, along with the aforementioned cancellable private mortgage insurance. You also will not need any credit history for this loan.
Native American Direct Loan – First Time Home Buyer Program
Pros
- Minimal credit score requirements
- No down payment and no private mortgage insurance
- Cheap closing costs
Cons
- Limited group of eligible borrowers
Eligibility
- Home must be located on allotted lands, Alaska Native corporations,
- Pacific Island territories or federally-recognized trusts
Best For
- Native American veterans that lack money for a down payment
Native American veterans and their spouses can apply for a Native American Direct Loan (NADL) for their new home. This VA-backed mortgage comes with many perks, but it most notably has a 0% down payment and set interest rate. Eliminating the need for a down payment opens up homeownership to many more buyers. This rate currently sits at 4.5%, though that is subject to change based on movement within the market and Prime Rate.
As far as credit conditions go, NADLs call for very little, so don’t get discouraged if you have a weak credit history. You also will not have to purchase private mortgage insurance, which is a perk that extends from normal VA loans. In an effort to cut down on the extra expense that closing costs can create, the VA has significantly lowered these fees associated with NADLs.
In addition to the programs available through the federal government, there are a few programs for first-time homebuyers offered through the state of Florida.
Florida HFA Preferred Conventional Loan – First Time Home Buyer Program
Pros
- Cheap mortgage insurance premiums
- Automatically qualifies borrower for an Assist Loan
Cons
- No direct down payment benefits
Eligibility
- Solely for first mortgages
Best For
- First-time home buyers looking to save on insurance
The Florida Housing Finance Corporation – HFA Preferred Conventional Loan is a 30-year fixed-rate mortgage that is great for anyone in need of cheaper private mortgage insurance for their new home. In theory, this will leave you more financial room to take care of other fees, such as closing costs. The “Housing Finance Agency (HFA) Innovation Fund for the Hardest-Hit Housing Markets” (HFA Hardest-Hit Fund) provides federal funding to states hardest hit by the aftermath of the burst of the housing bubble.
Although there is no direct down payment aid, you may qualify for the Florida Assist Loan. However, to get the Preferred Conventional Loan, it must be utilized as a first mortgage on a home.
Florida HFA Preferred 3% PLUS Conventional Loan – First Time Home Buyer Program
Pros
- Immediate qualification for HFA Preferred Grant helps shrink burden of down payment
- Lowered insurance costs
Cons
- Only comes as a 30-year loan
Eligibility
- Must be your first mortgage
Best For
- Anyone looking for down payment assistance
Florida HFA’s Preferred 3% PLUS Conventional Loan is slightly different than its counterpart. This mortgage option comes with both reduced mortgage insurance premiums, as well as direct down payment assistance. This will come in the form of an HFA Preferred Grant, which you will not have to pay back. It is a 30-year fixed-rate loan.
Similar to the above loan, the HFA Preferred 3% PLUS Conventional Loan has to be your home’s first mortgage.
HFA Preferred Grant – First Time Home Buyer Program
Pros
- Doesn’t have to be repaid
- Can help you pay your down payment/closing costs
Cons
- Will not apply to all borrowers
Eligibility
- Must be applying for an HFA Preferred PLUS loan
Best For
- Those who want a bit of extra financial help
While not a loan, the HFA Preferred Grant offer an opportunity for Florida residents to get essentially free financial assistance. Grants do not have to be repaid, and it can be as large as 3% of your home’s value. You can put this grant toward either your down payment or closing costs.
Although this comes with the Preferred 3% PLUS Conventional Loan, other applicants will find it a bit more difficult to qualify for than most other mortgages.
Florida Assist Loan Program
Pros
- As much as $7,500 in down payment assistance
- Payments are deferred until first loan is paid off or it’s not your primary residence
Cons
- Will extend your repayment process longer than your original loan
Eligibility
- Must have an initial mortgage to apply this to
Best For
- Anyone who cannot afford a normal down payment
For further down payment aid, Florida offers the Assist Loan. This can total as much as $7,500, but is required to be repaid, unlike the grant above. There is no interest on this mortgage, however. You are not required to begin making payments until either you refinance, you pay off your first mortgage or the home loses priority as your primary residence.
Though many mortgage applicants will likely be ecstatic with any form of assistance, this loan will make your repayment process longer than it would be with just your first loan. Also, unless you have a first mortgage, you’ll remain ineligible for the Assist Loan.
Florida Military Heroes Program
Pros
- Low interest rate
- Borrowers qualify for the Assist Loan program
Cons
- Limited applicant qualifications
Eligibility
- Must be active-duty military or a veteran
- Can only be a first mortgage
Best For
- U.S. military members
The Florida Military Heroes program allows those currently in the military and veterans special mortgage deals. First and foremost, they’re paired with significantly lower interest rates than typical home loans. On top of this, though, you’ll also qualify for the Assist Loan, which will provide down payment assistance in the form of an up to $7,500 second mortgage.
Because of the military-centric nature of these loans, they don’t apply to the vast majority of the Florida population. A Military Heroes loan can also only be for a first mortgage.
Florida Housing Mortgage Credit Certificate Program
Pros
- Can reduce your federal taxes up to $2,000/year from mortgage interest paid
Cons
- Limited qualifications
Eligibility
- Most first-time home buyers will qualify
Best For
- Those who are happy with their loan, but want to save on taxes
A Florida Housing Mortgage Credit Certificate is not a direct mortgage program, but it will help first time home buyers and certain veterans save on their annual federal income taxes based on how much they pay in mortgage interest. This is limited to up to $2,000 a year, as you can claim anywhere from 10% to 50% of your interest payments for the year.
Qualifying for one of the above first-time home buyer programs is just the beginning of the mortgage process. When it comes to finding a mortgage, it’s always best to do as much research and shopping around as possible. Be sure to check all lenders, interest rates and down payment stipulations.
A home is likely the biggest purchase you’ll make, as well as a big investment. That’s why it may be smart to consult a financial professional about how buying a home impacts your finances.
If you like what you’ve read and would like us to guide you in your own first time home purchase, please contact us to schedule a time to talk about buying your first home.
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