The best loans and programs for first-time homebuyers
There are a lot of things to think about when buying your first home. Where should you live? What are your must-haves and nice to have, and what is your budget? However, it is also the moment to face a decision as important as finding the right property: what is the best loan to use as a first-time homebuyer?
Finding the perfect fit among the many loans and programs offered by various lenders can be intimidating. After all, your mortgage will follow you for years, if not decades to come, and will likely account for a significant share of your budget.
There are a lot of factors that will affect your financing options as a first-time homebuyer, such as your credit score, the type of property you intend to buy, and how much you want to put as a down payment. People looking into buying their starter homes often have limited funds for a down payment and may not have the best credit score. It is always a good idea to shop around for a mortgage lender before settling, but here are some loans and programs you should look into as a first-time homebuyer.
The Federal Housing Administration backs FHA loans. In other words, the FHA will pay back your lender if you were to default on your mortgage. It allows borrowers with lower credit scores (580 FICO and up) and limited means to buy a home they may not otherwise be approved for, with down payments as low as 3.5%. Therefore, FHA loans are a popular choice for first-time home buyers. However, FHA loans come with their limitations. They are subject to limits on the mortgage amount, which varies based on your location. Not all properties qualify: they must meet basic safety and livability standards. You will also need to pay for mortgage insurance.
Fannie Mae and Freddy Mac
Fannie Mae and Freddie Mac back mortgages from local lenders and allow the borrower to put a low 3% down payment. Their credit score requirements are higher than FHA loans and start at 620. They also require first-time homebuyers to take a class to qualify.
Because of the low down payment requirements, you will need to pay for cancelable mortgage insurance.
USDA loans are similar to FHA loans and have comparable requirements. They also offer no down payment options in some cases.
However, as they are back (or sometimes issued) by the U.S. Department of Agriculture, they primarily target properties located in rural areas. Do not let this requirement deter you: it covers approximately 97% of the U.S. landmasses!
V.A. loans are backed by the U.S. Department of Veterans Affairs and are reserved for military personnel, veterans, and their families. They offer many advantages for first-time homebuyers who qualify, including no down payment or mortgage insurance requirements.
Good Neighbor Next Door
HUD sponsors the Good Neighbor Next Door program. It is an initiative targeting law enforcement officers, firefighters, emergency medical technicians, and teachers, providing incentives such as a 50% discount off the list price of eligible properties, located in designated “revitalization areas.”
Native American Direct Loans
The Native American Direct Loan program is an initiative of the U.S. Department of Veterans Affairs and targets veterans who are either Native American or married to a Native American. They offer multiple benefits, including no down payment or private mortgage insurance, as well as low interests and limited closing costs for those who qualify.
First-time homebuyer programs by state
Most states, as well as many local governments, offer assistance programs for first-time homebuyers. These incentives often target borrowers interested in buying a home in a specific area. They can take many forms, including down payment and closing cost grants. Check the requirements in your state to see what you may qualify for.
Good luck hunting for your first home!