Best Programs for First-Time Home Buyers

Summary: Don’t have the cash reserves to buy your first home? No issues. You can explore the many programs that are designed exclusively for first-time home buyers.

Many people let go of their home buying dreams only because they still think that a perfect credit and 20% down payment is must if you want to buy a home. There was a time when this was true; but not anymore. Today, there are many home-buying programs that eliminate all barriers to home ownership.

Most of the first-time homebuyers programs are geared towards helping people buy homes by qualifying their credit requirements and reducing their down payment. There are a few that offer tax incentives, subsidies for closing costs, and some extra cash to complete rehab projects. Here are a few of the best first-time homebuyer programs that come with their own perks and unique features:

FHA Loans

FHA or Federal Housing Authority loan is a product designed exclusively for low and middle-income home buyers. It comes with a low-down-payment and features less-stringent credit score requirements and competitive interest rates, when compared to conventional mortgages.

The down payment requirements of an FHA loan range from 3.5 to 10 percent of the purchase price. You can easily arrange this as a gift from your relatives or friends, if you don’t have the cash reserves. You may not need a long credit history to apply for an FHA loan.

You can qualify for an FHA loan with a credit score as low as 580.  If you are ready to put in a little extra down payment you can qualify for one even with a lower credit score than that. Find a couple of FHA approved lenders through FHA live transfer leads and find out if you qualify for a FHA loan. The property types that you can buy through an FHA loan include:

Single-family homes

Multi-unit properties (up to 4 units)

Approved townhomes and condos

Eligible manufactured homes

Eligible mobile homes

FHA loans are available only for properties that are used as primary residences. Also, you don’t have to be a first-time home buyer to qualify for an FHA loan. However, you have to make sure this FHA loan is the only outstanding mortgage you have, at the time of applying.

The only downside of an FHA loan is probably the private mortgage insurance (PMI) that you will have to pay. This will add to the monthly payments that you have to make, throughout the life of your loan.

FHA 203(k)

If you want to finance any rehab project as a part of your home loan, FHA 203(k) mortgage is the loan you need to apply for. This loan covers the estimated cost of repairs as long as the amount does not exceed 110 percent of the anticipated value of the home, after the renovation.

So, in case you are buying a home for $125,000 and want to add an extra bathroom, that will take its worth to $150,000, you can borrow a maximum amount of $165,000 (110 percent of $150,000) through a standard 203 (k) loan. After buying the home for $125,000, you get $40,000 for your upgrades.

Apart from the standard 203 (k) loan, there is also a limited 203 (k) loan that caps out an extra $35,000 for non-structural repairs and upgrades. Nevertheless, this requires less due diligence before closing.

There are stipulations that specify the kind of repairs you can make through FHA 203 (k) program. It covers rehab projects such as:

Kitchen and bathroom remodels

Additions or expansions

HVAC, plumbing, and electrical repairs

Energy efficiency upgrades

Replacement of roof, flooring, or siding

You cannot use a 203(k) loan for any of the luxury features such as hot tubs or pools, landscaping, fencing, and any addition that is non-residential in nature. Contact an FHA approved lender via FHA live transfer leads, to find out if the repairs you are planning are covered by the 203(k) loan.

Just like the traditional FHA loan, the FHA 203(k) loan also necessitates a down payment of 3.5 percent of the property value. You will also have to pay the monthly PMI. However, you will need to have a minimum credit score of 620 to qualify for a 203(k) loan. Also your debt-to-income ratio (after considering your new mortgage payment) has to be equal to or less than 43 percent.

Conventional 97

A Fannie Mae program, Conventional 97 is a program can finance 97 percent of your home’s value. However, the lender who originates these loans has to be approved by Fannie Mae. You will have to pay the required monthly PMI as you do for an FHA loan. However, the payments drop off once you build 80% equity on your home.

If you are a first-time home buyer it is better to apply for this loan through the HomeReady program. You can get your income cap waived off, if you fall into low-income census tracts. However, you might need a credit score of at least 620 to qualify for the program. If you want a competitive interest rate, your credit score has to be above 680. Also, you will need homebuyer education that can at times be a pain.

HomePath Ready Buyer Program

If you are fine with buying a foreclosed property, HomePath Ready Buyer program is something you should check out.  This can get you a 3 percent closing cost assistance, if you have completed your online homeownership readiness course. The cost of this course is only $75 and it comes loaded with valuable information about home buying. However, since this applies to only HomePath properties, your inventory would be limited.

There are many such programs that work well for first-time home buyers who do not have the cash reserves for a huge down payment. Make sure you go through all the terms and conditions before you sign the agreement with any of the lenders who offer these programs.