Being a Homebuyer Is Tough: Here Are Some First-Time Homebuyer Programs to Ease the Burden

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First-time homebuyer programs are designed to help hopeful homeowners purchase their first home with little to no money down. Coming up with a down payment, which can range from 3.5 percent for government-backed FHA loans to up to 20 percent for conventional programs, can be a major roadblock for many people. "There are a variety of these programs available, and they each have their own eligibility requirements," explains Erica Davis, loan officer. "Generally speaking, you need to show that you have a good credit score and a steady income in order to qualify for one of these programs."

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While many of these solutions are targeted toward first-time homebuyers, it's worth noting that anyone who hasn't owned a home for the past three years can be considered eligible in some circumstances, making it even easier for more people to take advantage of these down payment assistance options.

You can talk to your local mortgage lender to find out more about certain low down payment loan types. Depending on your credit score, income, and available savings, you may be able to qualify for a variety of mortgage programs that will boost your purchase power while lowering the amount of money you need to bring to the closing table.

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Want to buy a house but having trouble coming up with a down payment (or maybe struggling to see how you would afford a monthly mortgage payment)? These first-time homebuyer programs just might be able to help:

Low Down Payment Conventional Loans

It used to be that borrowers needed to put 20 percent down to qualify for a conventional loan. These days, there are a variety of options for first-time buyers who are struggling to put a sizable down payment together but still want to qualify for some of the benefits they'll get from using a conventional loan (like avoiding having to pay private mortgage insurance, or PMI).

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There's the conventional 97 mortgage (which only requires a three percent down payment), the HomeReady™ mortgage (which also only requires three percent down), and the piggyback. The piggyback is actually two mortgages that close simultaneously, with a first mortgage lien that covers 80 percent of the purchase price and a second that covers 10 percent, requiring that borrowers bring just 10 percent to the table.

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Note that these loans will likely come with more favorable interest rates, but they will have stricter qualification requirements.

Low Down Payment Government Loans (FHA, USDA, VA)

If you want to explore options outside of a conventional loan, there are a few different types of government-backed loans: FHA, USDA, and VA.

Federal Housing Administration (FHA) Loans

The Federal Housing Administration insures FHA mortgages, and they're only offered by FHA-approved lenders, explains Justin Brilman, mortgage loan officer at U.S. Bank. "The agency's backing offers lenders a layer of protection so they won't experience a loss if the borrower defaults," he says.

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These loans can allow borrowers to bring as little as 3.5 percent to the table with the ability to finance closing costs. "There will be mortgage insurance required for anything less than 20 percent," he continues. "The mortgage insurance is both a one-time cost added to the loan as well as a monthly payment."

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The mortgage insurance on an FHA loan exists for the life of the loan, unlike conventional mortgages where you can cancel mortgage insurance once your loan-to-value ratio is 80 percent or less. (In other words, once you've paid off 20 percent of your loan.)

Veterans Affairs (VA) Loans

VA loans are similar to FHA loans, as they are backed by a government agency: the U.S. Department of Veterans Affairs. "These loans must have one borrower who is either active military, discharged, or a reservist," Brilman says. "You can put as little as zero percent down with competitive interest rates. Unlike the FHA loan, there is no mortgage insurance charged to the buyer."

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U.S. Department of Agriculture (USDA) Loans

USDA loans also fall into this category since they're backed by a government agency (the United States Department of Agriculture), and they also have a zero percent down option. Unfortunately, this program isn't available everywhere since there are geographical restrictions based on population. To qualify, you need to be buying in an area that falls into their rural development code, which can be found on their website.

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Good Neighbor Next Door

If you're a teacher, police officer, or other career professional who can contribute to revitalizing your community, you may qualify for the Good Neighbor Next Door program. This program is run by the U.S. Department of Housing and Urban Development (HUD) and offers a discount of up to 50 percent from the list price to qualifying borrowers who purchase from HUD's supply of real estate owned, or REO, properties. These homes have been defaulted on by their previous owners and have reverted to HUD ownership, which means not every home will qualify for this program.

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HomePath Ready Buyer

Run by government entity Fannie Mae, the HomePath Ready Buyer program is actually an educational course that teaches first-time homebuyers everything they need to know about responsible homeownership. Those who complete the course will receive a stipend from Fannie Mae in the amount of three percent, which can be applied to the buyer's closing costs.

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State and Local Programs

In addition to federal programs, there are also some additional ones offered to residents of certain states and can even be as specific as the town in which you live. "There are so many options these days for first-time buyers," Davis says, adding that she highly encourages renters to see if they are eligible. "The sooner you can start building your own wealth and equity, the better off you will be financially."

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You can do this by searching online for programs offered where you're looking to buy or by reaching out to a local bank or lender and asking them what they know about programs offered in the area.

Down Payment Assistance

Some programs will actually provide borrowers with the money they need to get to the closing table in the way of grants from local entities that are hoping to see an area be revitalized. "Some programs that have down payment assistance require that you live in the home for a certain number of years before you are able to sell it," Davis explains, which is why it can be important to read the fine print and consider your long-term plans before requesting these types of funds.

Some borrowers may also ask for closing cost assistance by requesting a seller concession, which is when the sellers will credit back the borrowers a predetermined sum of money at the table that is then applied directly to allowable fees and charges. Your real estate agent can help you negotiate this type of assistance when you put in your initial purchase offer.

Start Your Search Today

Many of these programs can be a huge help to hopeful homeowners, but they can also be time consuming. Grant requests may take weeks to process, and local programs could have requirements that involve a lot of additional documentation at the time of application. It's best to start looking into these options at the beginning of your house hunting process so you don't find yourself missing out on your dream home while you try to iron out the details.

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