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A Guide To First Time Home Buyer Programs, Loans And Grants 

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Many people’s life goals include purchasing their ideal home. People start saving for their own homes at a very young age in their financial development. As we consider our own homes, we consider several factors, including a suitable location, the cost of the property, its proximity, the lifestyle, and the available communal space. Read the article to find out what experts recommend for a first-time home buyer.

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What is a first-time home buyer?

Most government and charity programs use a precise definition of a first-time home buyer. The phrase, though, can be a little deceptive. If you haven’t owned a property in any capacity for the previous three years, you’re considered a first-time home buyer. 

As a result, even if you’ve owned a property in the past, you might still be able to take advantage of various first-time home buyer programs as long as it has been at least 3 years since your last ownership and you meet all other requirements. 

Benefits of being a first-time homebuyer

A house typically increases in value over time as an asset. Thus, getting one is still a key part of the American dream. If you don’t have enough for the customary minimum down payment—ideally, 20% of the purchase price for a conventional loan—or belong to a particular group, being a first-time buyer may open the door to tax benefits and federally backed loans. Even if you are not a novice, you can be eligible for a first-time purchase tax credit. 

As a first-time buyer, you could also benefit from a down payment or closing cost assistance programs. These programs may cover your down payment and closing costs, which state governments or nonprofit groups may run. This will enable you to realize your goal of becoming a homeowner. 

Qualifications of first-time buyers

Those who fit any of the following criteria are considered first-time homebuyers, as per the (HUD) U.S. Department of Housing and Urban Development: 

  • An individual who has been three years without owning a primary residence. If you’ve owned a home before, but your spouse hasn’t, you can buy a property as first-time homebuyers together. 
  • A single parent who has only ever co-owned a house with a married partner. 
  • An individual who has only ever owned their primary residence, which is not legally required to be permanently anchored to a foundation. 
  • An individual who has only ever owned a piece of real estate that didn’t adhere to municipal, state, or model building codes—and that couldn’t be brought into compliance for less than the price of building a permanent structure. 
  • A former homemaker who has only ever shared a house with a partner. 

Types of first-time home buyer programs

Costs for first-time homebuyers may seem prohibitive. But fortunately, there are several financing programs available, including nonprofit and public ones, to help you with your down payment and closing fees. Tax breaks on the local and federal levels can decrease the impact, and educational programs can provide support at every stage. 

Down Payment Assistance 

When purchasing a home, a down payment is a sizable upfront cost that is necessary for most mortgage types. Because many lenders offer down payment assistance, you won’t have to pay the down payment upfront. Most programs for down payment help are grants or low- or no-interest loans, and many are only available to first-time buyers. The particular assistance programs for which you are eligible may have an impact on how you can use your funds and whether you must repay them. 

DPA Loans 

You’re unsure that you can afford a down payment by yourself. You may also be eligible for some down payment assistance programs through certain types of loans to reduce the amount you must put down. Second mortgages, loans with postponed payments, and forgiven loans are a few alternatives. Second mortgage-style loans must be repaid concurrently with your primary mortgage. Whether you relocate, sell your home, refinance, or pay off your primary mortgage, any deferred payment loans must be fully repaid. 

Loans may also be forgiven over a certain number of years, but if you move before that time period is up or otherwise break the terms of the forgiveness, you will need to pay it back when you sell, refinance, or pay off your primary mortgage. 

DPA Grants 

DPA may be available to you through grants that don’t require repayment. You should check with your local or state government for specifics on any first-time buyer down payment help programs, as program qualifications for loans and grants may differ.  

Government-Backed Loans 

First-time homebuyers who meet other requirements may be able to purchase with no down payment thanks to a federal government-backed loan; we’ll go into more depth about these sorts of loans below. 

Tax Deductions 

Sadly, you are no longer eligible for the $7,500 first-time homebuyer credit the Housing and Economic Recovery Act provides. It was discontinued in 2010. 

You can still reduce your tax liability by taking advantage of different deductions. Federal and state deductions may reduce your taxable income. 

You may additionally deduct the cost of interest paid on loan amounts up to the prior maximums for a primary residence and one second home. Perhaps the two biggest homeownership deductions are these two. 

You might be able to take advantage of additional credits and deductions from your state or local government. 

Closing Assistance 

Government-sponsored and commercial programs can help you cover closing expenses, similar to down payment assistance. Closing costs are extra charges you make after the mortgage application process. Closing costs normally range from 2 to 6 percent of the entire cost of your mortgage. Sometimes closing costs help, like down payment aid, which can come as a grant or loan. 

Also, you might ask your seller for concessions or aid with closing fees. The seller could cover attorney expenses, title insurance, and real estate tax services. They may also help pay property taxes and advance points to reduce interest rates. 

Home Buyer Education 

If you’re unsure about where to begin your home search, you might benefit from online courses and other tools. You can learn about financing possibilities, the home-buying process, and how to submit a mortgage application in a good first-time home buyer class, which may be free or inexpensive. Search online for first-time home buyer-focused real estate courses. 

Federal First-Time Home Buyer Programs

When you purchase a property, you are eligible for federal, state, and local government programs. Any American citizen or legal resident is eligible to participate in federal programs. You don’t have to reside in a specific state to receive government assistance, even if not everyone is eligible for every program. The most well-known federal programs for first-time homebuyers are listed below. 

Government-Backed Loans 

You may be able to purchase a home with a modest down payment or with bad credit if you use government-backed financing. Government-backed loans are less risky for lenders since the government covers them. 

Lenders are now able to provide borrowers with reduced interest rates. Three types of government-backed loans are available: FHA, USDA, and VA. Each program has a unique set of requirements. 

Good Neighbor Next Door 

Are you a pre-K through 12th-grade teacher, EMT, fireman, or police officer? The Department of Housing and Urban Development’s Good Neighbor Next Door program (HUD) can benefit you. 

At a generous 50% reduction, some HUD properties are available through the Good Neighbor Next Door program. Even without the discount, the available foreclosures are fairly reasonably priced. The HUD program website features a list of available properties. 

HomePath Ready Buyer  Program 

With the help of its HomePath program, Fannie Mae allows first-time homebuyers to purchase a foreclosure for as little as 3% down. You can qualify for up to 3% of your closing costs to be reimbursed under the program. Fannie Mae homes are sold “as-is,” so you might need to make a few repairs before you can move into your new home. However, closing cost assistance can make it easier to pay for these costs. 

Only first-time buyers who intend to live in the home they are purchasing full-time are eligible for the HomePath® Ready BuyerTM program. Before closing, you must complete and pass Fannie’s HomeView Homeownership Education course.   

State And Local First-Time Home Buyer Programs

The majority of federal housing subsidies are provided through regional and local initiatives. Program specifics differ based on area. 

Charitable Or Nonprofit First-Time Home Buyer Programs

If you make a low to moderate income, you might be eligible for charitable or nonprofit aid. When you purchase property, charities, and NGOs, non-governmental groups can provide you with financial and educational resources. Typically, nonprofits have income requirements that limit who is eligible for assistance. 

  • Habitat For Humanity 

Habitat for Humanity, a global nonprofit that provides “simple, adequate, and inexpensive” housing for low-income families, is one of the most well-known housing NGOs. Once you close, Habitat for Humanity continues to build homes for those in need at no cost to itself. Compared to nearby possibilities, their residences are significantly cheaper because of this.    

  • Neighborhood Assistance Corporation Of America (NACA) 

Another national nonprofit that can assist you in purchasing a property is the Neighborhood Assistance Corporation of America (NACA). “Financially unstable” households can receive mortgage counseling and education from NACA. Members of NACA’s staff also assist low-income families in locating lenders who will work with them. 

NACA loans can provide you with a more individualized look at possible routes to homeownership because they don’t need a down payment, closing costs, or a minimum credit score. 

Many charities and nonprofits are region-specific, just like government initiatives. Every state and county has a list of approved NGOs that HUD continuously updates. 

Employer-Sponsored First-Time Home Buyer Programs

You might not be aware that your employer may contribute to your house purchase. Several firms are increasingly implementing housing incentives to assist employees with down payments and closing costs. Your labor union might also provide closing aid, and your employer might provide you with a grant or loan you can repay over time. 

Depending on what your work offers, you may be able to access employer-sponsored programs. Employer-assisted housing programs are typically cooperative initiatives involving state governments and employers. Not all employers provide housing or closing aid. 

Set up a meeting with your boss or an HR representative to discuss any programs your employer may offer to help with closing costs or a down payment.   

The Buying Process

Find a Home

Use all the resources at your disposal to identify homes for sale, including your real estate agent, internet listing search engines, and driving about neighborhoods of interest looking for sale signs. Don’t enter an open house unless you have an agent with you if you’re truly considering buying a house. To increase their equity and move up the housing ladder, first-time homeowners should look for a home they can improve. 

Consider Your Financing Options, Then Secure Financing

First-time homebuyers have a wide range of alternatives to help them purchase a home, including those open to all buyers, such as mortgages backed by the Federal Housing Authority (FHA) and those designed especially for beginners. Look at the following for more info. 

Your state’s programs 

  • HUD’s resource listYour IRA 
  • Native American options 

Pre-approvals and Choosing Lenders

While requesting a pre-approval or looking for a mortgage, don’t feel obligated to stick with your existing financial institution: Even if you are only eligible for one sort of loan, shop around. The range of fees is often startling. After you’ve chosen a lender and submitted an application, that lender will examine all of the provided financial data. The borrower may receive pre-approval from the lender for a specific sum. Be aware that if you take any actions that could lower your credit score, such as financing a car purchase, even if you have been pre-approved for a mortgage, your loan could be canceled at the last minute. 

Make an Offer

Your real estate agent will advise you on how much money to offer for the house and any stipulations you should include in your offer. The seller will either accept your offer or make a counteroffer once your agent presents it to the seller’s agent. After that, you can accept or continue to negotiate until you reach an agreement or decide to give up. 

Have the Home Inspected

There is no replacement for having a qualified professional conduct a home inspection of the property to determine the quality, safety, and general condition of your possible new home, even if the house you intend to buy appears to be faultless. In most cases, you have the right to cancel your offer and get your money back if the home inspection reveals severe faults that the seller was not honest about. Alternatively, you can request that the vendor lower the asking price or undertake the repairs. 

Close—or Move On

You should be prepared to close if you can reach an agreement with the seller or, even better, if the inspection turns up, there are no major issues. To close, you simply have to sign many papers quickly while hoping that nothing unexpected comes up. 

What next after being a first-time home buyer

Keep Saving 

Save up money in case something unexpected comes up 

Perform Regular Maintenance 

Frequent maintenance enables problems to be repaired when small and manageable, lowering your repair expenses. 

Ignore the Housing Market 

The largest factor in determining whether you will get a good return on your investment will be whether you can sell your house at a time of your choosing rather than being pressured to do so because of a job transfer or financial hardship. 

First-time homebuyer mistakes to avoid

Looking for a home before submitting a mortgage application 

Get a completely underwritten pre-approval before you fall in love with that lovely dream property you’ve been eyeing. 

Talking to only one lender 

Consult at least three different lenders and a mortgage broker before deciding. Since prices fluctuate frequently, try to obtain all rate quotations on the same day. Compare loan conditions, rates, and lender costs. 

Buying more houses than you can afford 

Instead of getting caught up in the maximum loan amount you are eligible for, concentrate on what monthly payment you can afford. Consider your entire financial profile when deciding how much house you can afford because every borrower’s situation is unique. 

Draining your savings 

Even after you shut down, you should aim for an emergency fund with three to six months’ worth of living expenses. Although paying mortgage insurance is not ideal, it is better to avoid the risk of using all of your emergency or retirement funds to make a sizable down payment. 

Being careless with credit 

From pre-approval to closing, maintain the status quo in your financial situation. Before applying for a mortgage to closing day, refrain from opening new credit cards, canceling current accounts, taking out new loans, or making sizable expenditures on existing credit accounts. 

Fixating on the house over the neighborhood 

Decide what matters most to you in a neighborhood and do your research. You might wish to look into school rankings, commuting times, and other aspects depending on your requirements or preferences. You may go to the neighborhood at various times to observe the traffic volume and determine whether you’d like it there. 

Making decisions based on emotion 

Think from a financial and rational point of view before making decisions, i.e., assuming you need a 20 percent down payment. 

Think about other mortgage possibilities.

For a conventional loan with PMI, you can put as little as 3 percent down, and if your credit score is 580 or higher, an FHA loan only needs 3.5 percent. You could even obtain a mortgage with no down payment at all with some other types of loans. 

Waiting for the ‘unicorn.’ 

Be willing to put in some sweat equity and keep an open mind about what’s available on the market.

Overlooking FHA, VA, and USDA loans

Look into one of the three government-backed loan programs offered by the Federal Housing Administration, the Department of Veterans Affairs, and the Department of Agriculture of the United States (USDA loans).

Overlooking the hidden costs of homeownership

You may calculate the costs of taxes, mortgage insurance, and utility bills with the assistance of your real estate agent or lender. Compare prices by shopping around for insurance coverage. Finally, attempt to set aside between 1% and 3% of the home’s purchase price each year for maintenance and repair costs. 

Not negotiating a homebuyer rebate. 

See whether your agent is prepared to give you this rebate at closing if you reside in a state that permits homebuyer rebates. 

Not considering moving and other upfront costs. 

Ensure you have some additional cash before purchasing a home to cover unforeseen costs. When purchasing a property, include these expenses in your budget. 

Missing out on assistance programs  

There are numerous initiatives to support first-time homebuyers. These can include grants that provide money for a down payment and local government or community initiatives that provide free classes on home ownership and home purchase. 

First-time homebuyer –  Summary

First-time homebuyers can access various grants, loans, and financial aid to ease the purchasing process. Assistance for first-time buyers may include tax credits, financial aid for education or down payments, and closing fees. If your income is under certain limits, you might be eligible for local, state, or federal assistance. Nonprofits, charities, and employers offer additional programs. These programs differ by state, but you can readily identify programs you are eligible for on the HUD website. If you are a first-time buyer, you cannot have owned property in the previous three years. 


FAQ – First-time home buyer

What is a first-time home buyer? 

The term “first-time homebuyer” often describes someone who makes their first purchase of a primary dwelling. First-time homeowners can qualify for special perks offered by state and federal governments, including low down payments, subsidies, and help with closing expenses. 

Who qualifies for first-time home buyer programs? 

A person who has been three years without owning a primary residence. If you’ve owned a home before, but your spouse hasn’t, you can buy a property as first-time homebuyers together. A single parent who has only ever co-owned a house with a married partner. 

How much money should I save before buying a house? 

Generally speaking, experts advise saving at least 20% of the home’s total cost as a down payment. 

Can I borrow 5.5 times my salary? 

You can, indeed. But, based on your financial situation and income sources, you could need to make a larger deposit. In fact, we just covered a new deal from a mortgage provider offering mortgages for 5.5 times salaries with only a 15% down payment. 

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