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Top Programs for First-time Homebuyers

By Kyle Hughes, May 13, 2021 5 min read

Do I rent or buy? Can I afford a home in this area? What type of loans am I qualified to get? Do I buy or build a spec home? There is a lot to consider if you are a first-time homebuyer, and we want to help you out with your process. If this is your first time researching how to buy a home or looking at your option, you probably have many questions.

First-time homebuyers are often told that there is no way they will get a loan without having at least 20% cash of the entire value of the property they are buying. However, plenty of programs and grants are available that assist first-time homebuyers with their down payments and closing costs. Today, we will discuss different opportunities that first-time homebuyers have and the requirements for these loans. 

USDA Loans

USDA stands for the U.S. Department of Agriculture, and it guarantees loans to owners of rural homes, allowing buyers to finance up to 100% of the property value. Of course, you will have to round up the closing costs for the property (generally around 5% of the property value), but this is one of the cheapest financing alternatives when looking to buy a home.

Like any loan, you’ll need to meet some requirements to qualify for a USDA loan. The loan is limited depending on where you live and generally targets people in low to moderate-income areas. You also must have a credit score of 640 or higher to qualify for the loan. This is one of the most affordable ways to purchase a home today.

VA Loans

A VA loan is another way for a first-time homebuyer to get a home 100% financed. The U.S. Department of Veteran Affairs was created to help individuals who have served in the military. Unlike other programs that allow 0 down payment, there is a funding fee at closing. The closing fee will be a percentage of the loan’s total value and helps keep the program running for future borrowers. 

There are service requirements that allow qualification for this loan. The U.S Department of Veteran Affairs website has much more information on the official requirements, but the basic requirements are:

  • You are currently active military duty, or you are a veteran with an honorable discharge and meet the minimum service requirements.
  • You have 90 consecutive active days during wartime or 181 consecutive days active service during peacetime. 
  • You’ve served six years of in the National Guard or Selective Reserve
  • Your spouse has died in the line of duty

VA loans are outstanding if you qualify because they also come with a much lower interest rate than other loans. Mix a low interest rate with little to no down payments; you can’t find a much better financing deal than that!

Fannie Mae or Freddie Mac Loans

Fannie Mae and Freddie Mac are well known for purchasing mortgages from financial institutions that lend mortgages and then repackage those mortgages into their portfolios or mortgage-backed securities to sell to investors on the secondary mortgage market. They also set the borrowing guidelines for loans they buy from financial institutions. However, both Fannie Mae and Freddie Mac also have programs that help strong-credited homebuyers when purchasing a home. 

To qualify, applicants will need to have a credit score of 620 or higher and provide a minimum of 3 percent down payment. When you get pre-approved for a loan, lenders typically pull your debt-to-income ratio to see what amount they are comfortable lending you. On average, lenders want to see a debt-to-income ratio lower than 35 percent. However, Fannie Mae is willing to accept applicants with a debt-to-income ratio as high as 50 percent, given that their credit is above the minimum requirement. 

Private mortgage insurance (PMI) is required if you put less down less than 20 percent on the property, but you can get it canceled once the loan-to-value ratio surpasses 80 percent.

Fannie Mae’s HomePath Ready Buyer Program

Another program offered by Fannie Mae with similar qualifications is the HomePath Ready Buyer Program. This program is tailored to individuals interested in buying foreclosed homes that Fannie Mae owns. For this program, you must be able to pass the online home buying education course, and you will be able to receive up to 3 percent in closing cost assistance during the purchase of the property.

This program sounds like a great deal, and it is when you have the opportunity to use it. The problem is that decent foreclosed homes are hard to come by and can be challenging to find if you are looking for them (plus, they may need work and can be expensive investments).

Good Neighbor Next Door Program

The U.S. Department of Housing and Urban Development is dedicated to helping aid law enforcement officers, firefighters, and emergency medical technicians, and teachers find a home that works for them. Qualified participants can receive a discount of 50 percent on a home’s listed price in particular areas known as “revitalizations areas.” Using the HUD website, you can find available properties within your state of residence. However, you will have to commit to living in the home for at least 36 consecutive months.

State and Local Programs for First-Time Homebuyers

When in doubt, do some local research before buying your first home! Figure out if your city or state offers unique programs that aid first-time homebuyers, and you may be surprised by what you find. For example, specific programs help individuals with their down payments and closing costs. In addition, some cities or states may offer stipends to attract new residents to an area.

There are so many different types of loans available to benefit you. Homeowning comes with its own set of challenges but can be very rewarding when putting money into an appreciating asset. So do your research and figure out what loan will help you buy your dream home today!

Tags:Financial Wellness

About the Author

Kyle HughesFinancial Wellness Copywriter

Kyle Hughes is a Texas-based financial writer who has worked in the financial sector since he was 18 years old. Kyle recently obtained a bachelor's degree in finance and currently works full time as an enterprise risk analyst for a mid-size bank in Texas. Though he loves his day job, his entrepreneurial mindset has led him to create a side hustle as a financial writer. He has a passion for teaching finance and business to common people and business owners. He is currently working on his small business consulting startup known as "Capital Puzzles" and hopes to turn it into his full-time job one day.

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