first time home buyer round-up training

First-time homebuyers don’t have to be held back

What typically holds people back from home ownership?  Large down payments and low credit scores.  Many traditional home loans require a down payment of at least 20% and credit scores in the high 700’s.  If you are just starting out, you may not have this built up yet.  Does this mean you can’t manage a mortgage?  No! But it does mean you may need some help getting into the market with a first-time homebuyer program.  In this two-part series, Nancy Miller will give you the basics on first-time homebuyer programs, starting at the federal level.

What is a first-time homebuyer, anyway?

The question is not as obvious as it sounds.  Of course, if you have never owned a home in your life, then you are definitely a first-time home buyer.  However, you may not know that if you have not owned a home in the past three years, the government considers you a first-time homebuyer, and therefore you pass the first step toward qualifying for the programs below.

The Federal Program Roundup:

large suburban houseThe federal government understands that homeownership helps the economy, so they have several programs to help first-time homebuyers get into the market quickly.  You may have heard of some of these programs; others are newer, so you may not have heard of them yet.  One thing that can be confusing about these programs, however, is that they are not loans through the government, but rather programs that most mortgage lenders can help you get into.

FHA stands for Federal Housing Authority and is a federal program through the U.S. Department of Housing and Urban Development (HUD).  To qualify, you typically only need a down payment of 3.5% of the loan amount.  Your credit doesn’t have to be perfect, in fact, the program will even finance people who have had bankruptcies.  The only drawback is that you will have to pay mortgage insurance, which may add about $100 to your monthly bills.  Because the federal government funds the loans, the interest rates are also very competitive.  To help you through this process, HUD offers a special database of FHA-approved lenders.

VA:  Got a military connection?  This loan is for military service members, veterans, and surviving spouses. A loan guaranteed by the Department of Veterans Affairs, two really great benefits are that you don’t have to have a down payment at all, and you won’t have to pay mortgage insurance.  There are one-time funding fees of up to 2.15% of the loan, which can be reduced if you do have a down payment of 10%. Most lenders guiding you through this program typically require about a credit score of around 620.

country style houseUSDA: How did the United States Department of Agriculture get into the home loan game?  In an effort to “increase the quality of life” for people living in rural areas, the USDA was formed to help those making a low to moderate income become property owners.  If you dream of moving to the country, this program could be for you.  It is one of the only programs for non-military people that does not require a down payment.  It does have income requirements—you cannot make more than 115% of the median income for the area in which you live.  However, it has ways to get around a credit score under 640, which requires additional documentation.  You do have to pay for mortgage insurance, but at a much lower rate than with an FHA loan.

Good Neighbor Next Door: Previously known by the various professions next door (teacher, firefighter, etc.), this program is for those who serve their communities.  This loan requires that you are or have been a police officer, firefighter, EMT or full-time teacher.  With $100 for a down payment, one of these “good neighbors” can buy a HUD home at half price.  Finally, a break for the hardest-working, most valuable people in our country!  It does limit the properties to specific neighborhoods and is meant to revitalize communities.

row housesHUD 203(k) loans: Also known as the “fixer-upper” loan, this FHA loan is specifically intended to keep older homes in the U.S. looking good.  And if you are familiar with all the historic homes in the La Grange, IL area, this is a good thing for us!  This loan allows homeowners to not only buy their older home, but also to include renovation costs in their original loan.  This one is a little bit tougher to qualify for, as you must have a minimum credit score of 640 and no more than a 43% debt-to-income ratio after applying the new debt of the 203(k) loan.  This loan will also require that you come up with a higher down payment, as the loan will be larger than the purchase price of your home.  This also means you will have a higher monthly payment.  And you will have to pay mortgage insurance.

Dollar Homes: Can you buy a home at the Dollar Tree?  No, but you may be able to buy a single-family home at a significant savings if you meet certain income requirements (low to moderate income).  So how does this work for the first-time homebuyer?   The local government that purchases the home works with other organizations to repair the home and then offers it to homebuyers in the low to moderate income range.  The thinking is that it can revitalize a neighborhood by bringing in residents rather than allowing a building to stand vacant and attract illegal activity.

Choose the right federal program for your first-time homebuyer loan

Now the hard part—choosing the right program.  With a good mortgage lender, this does not have to be hard at all.  Mortgage lenders are the home loan experts, and most of them want to help the first-time homebuyer get the most home for their money.  Nancy’s preferred lender is Jill Diethelm.  If that doesn’t seem to work for you for some reason, try talking to someone where you bank.  They should surely steer you in the right direction.


You’re in the Best Hands!

As a real estate home buying and selling expert, it is my goal to find what's best for you. I carry more than 25 years of experience as a professional Realtor. I've seen nearly everything you can imagine within our home buying and selling industry. I'm here to be your expert guide, making sure you have as great of an experience as possible!

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  • Broker
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  • National Association of Realtors
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  • Multiple Listing Service
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  • Relocation Specialist
  • Certified Staging Consultant
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