Popular first time buyer mortgage programs
To start, there are quite a few first time homebuyer loan programs available on a national scale. As a general rule of thumb, these programs have more flexible qualifying standards, such as lower credit score requirements and smaller down payment options, to make the path to homeownership a little easier.
The FHA is considered the premier first time homebuyer loan program. These loans are insured by the Federal Housing Administration and available to anyone who has not owned a home in the last three years.
FHA loans offer the chance to make a 3.5% down payment, provided that your credit score is at least 580. However, the program will accept scores as low as 500, provided you can make at least a 10% down payment.
Notably, FHA borrowers are subject to an extra cost and a few extra rules in exchange for that flexibility. The mortgage insurance premium (MIP) is an upfront and annual fee meant to protect the lender in the event that you default on the loan. Plus, the property you're buying must be a primary residence, meaning this program is not fit for investors unless you intend on house hacking.
If you or your spouse served in the military, you might be a candidate for a VA loan. As the name suggests, VA loans are backed by the U.S. Department of Veterans Affairs.
Truthfully, VA loans are some of the most flexible on the market. There is no down payment requirement or official minimum credit score. In addition, you won't have to pay mortgage insurance and may be able to score a lower interest rate.
That said, these loans are subject to eligibility, and you will need to pay a funding fee for the loan to go through. Additionally, each participating lender is entitled to add their own "overlays," which is a term for additional qualifying requirements that are specific to that mortgage lender.
Meanwhile, if you're in the market for a home in a rural area, you may want to consider looking into getting a USDA loan. These loans allow homebuyers to finance up to 100% of the home's purchase price. The streamlined version of these loans allows for a credit score as low as 640, but it can be lower if you're willing to provide additional documentation.
You do have to meet a certain income threshold to be considered eligible for a USDA loan. Specifically, these loans are meant for low-to-moderate-income Americans. Additionally, the property that you intend to buy must be located in a USDA-eligible area
Good Neighbor Next Door
Originally aimed at teachers, the Good Neighbor Next Door loan program has expanded to include law enforcement, firefighters, and emergency medical technicians (EMTs).
Developed by the Department of Housing and Urban Development (HUD), the program allows qualified participants to receive a 50% discount on the purchase price of certain homes located in designated revitalization areas. You just have to be willing to live there for at least three years.
Conventional mortgage options
Those who have a relatively solid financial profile may be able to qualify for a conventional loan. Fannie Mae and Freddie Mac -- the two government-sponsored enterprises that set the borrowing guidelines for conventional loans -- each offers a program geared toward first time homebuyers.
The Fannie Mae HomeReady and Freddie Mac Home Possible programs both offer a loan option that allows low-income borrowers to put as little as 3% down and have a debt-to-income ratio of up to 43%. This option is available to borrowers with a credit score of at least 620 -- as long as they meet the other qualifying requirements.
If you decide to apply for one of these mortgages, you will need to take a first time homebuyer class. In addition, you will have to pay for private mortgage insurance if you put down less than 20% on the home. However, once you build up some equity, you will have the ability to opt-out of your mortgage insurance.
Finding a state or local first time homebuyer program
In addition to the loan programs we mentioned above, there are mortgage options available to first time homebuyers on state and local levels. Your best bet to find out whether a mortgage program offered by your state is the right fit for you is to talk with a loan officer in your area.
While talking with the mortgage lender, you may also want to ask whether there is a down payment assistance program available to you. As a first time borrower, you may be eligible to receive a grant or a low- to no-interest second home loan that may help you cover the upfront costs of buying a home. Typically, the funds from a down payment assistance program can be applied to your down payment or closing costs.
The Millionacres bottom line
As a first-time homebuyer, the process of buying a home can seem intimidating. However, it's important to realize there are financing options out there that are meant to help make it easier.
If you think you might be a candidate for one of these programs, don't hesitate to reach out to a mortgage specialist. They can help you go over the specifics of qualifying for these programs and give you estimates about what you can expect from a loan, including the interest rate and monthly mortgage payment.
When you are finally ready to start shopping for a home, a mortgage specialist can also help you apply for a mortgage preapproval.