Home-Buyer Programs: What First-Time Home Buyers Need to Know

By Right Start Mortgage
December 20, 2022

It’s time to make the leap from renter to homeowner, but you’re unsure where to start. How do you confidently navigate this uncharted territory and avoid costly mistakes while taking advantage of first-time home buyer programs, grants, and loans? We’ll tell you everything you need to know.

Advantages of Being a First-Time Home Buyer

Many first-time home buyers enter the world of real estate with trepidation but believe it or not; there are many perks to being a new entrant in the real estate game. For example, while veteran home buyers are expected to produce a minimum downpayment of between 10 and 20 percent of the purchase price of a home, first-time buyers may qualify for FHA loans, which often only require down payments of 3.5 percent.
Additionally, first-time home buyers may be eligible for tax breaks, down payment and closing cost assistance, and other federally-backed loans with lower interest rates.

How Do I Qualify?

At first glance, “first-time home buyer” should have an obvious definition, but looks are deceiving. The U.S. Department of Housing and Urban Development (HUD) considers first-time homebuyers to be anyone who:

  1. Hasn’t owned a principal residence for three years. There’s a caveat here: If your spouse has owned a home, but you haven’t, you can still purchase a home together as first-time homebuyers.
  2. Is a single parent or displaced person who previously owned a home with a spouse.
  3. Owned a principal residence that was not permanently affixed. A manufactured home or trailer are two examples.
  4. Owned a property that is/was non-compliant with government building codes and cannot be brought into compliance.

First-Time Home Buyer Programs

Congratulations, you qualify as a first-time home buyer. Now it’s time to review your program options.

Down Payment Assistance (DPA)

When you purchase a home, you must produce a down payment. Traditional lenders generally require home buyers to come up with a 10 to 20 percent down payment. But because you are a first-time home buyer, you may be eligible for DPA programs that reduce or eliminate upfront down payment costs.

DPAs come in several forms, including second mortgages, deferred payment loans, and forgiven loans. Second mortgages must be paid off simultaneously as your primary mortgage. Deferred loans must be paid off when you move, sell, or refinance. Lastly, forgiven loans can be temporarily deferred; however, they must be repaid when you move, sell or refinance.

Down Payment Grants (DPG) and Government-Backed Loans (GPL)

DPGs are especially appealing because they are backed by the federal government and do not have to be repaid. Requirements vary.

Closing Assistance

What happens if you find your dream home but can’t cover closing costs, which is typically between two and five percent of the purchase price? The good news is numerous government-sponsored, and private programs are available to first-time home buyers.

Considerations Before You Buy

Ready to leap into home ownership? That’s great, but first, consider the following:

Your financial health: Before hopping on Zillow and falling in love with your dream home, look at your finances. Even if you qualify for an FHA loan, you’ll still have to produce a minimum 3.5 percent down payment. If you’re purchasing a $250,000 home, your down payment will be $8,750.

In addition to a down payment, you’ll also have to pay closing costs, typically between two and five percent of the purchase price.

Your spending habits: Next, review your spending. What is your debt-to-income (DTI) ratio? In other words, how much money do you make every month, and how much debt do you have? A favorable DTI should clock in at or below 43 percent.

Your credit score: Next, pull your credit score. Ideally, it should be 620 or higher.

Right Start Mortgage: Your Mortgage Experts Since 1989

Contact the expert mortgage advisors at Right Start Mortgage for more information. Whether you’re looking to buy, sell, or refinance your home, we’re here to help. Get started today by requesting a free personalized rate quote.

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