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7 First Time Home Buyer Government Programs to Assist You

By Jarrod Heil

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Becoming a first time home buyer can be an exhaustive process. Finding the perfect home, securing a mortgage and putting up a chunk of change for a hefty down payment and closing costs — all the while trying to live your life — can really be a bummer.

Fortunately for you, there are many first time home buyer government programs that can provide assistance to help ease the burden and enhance the excitement that comes with the purchase of your first home.

If you’re seeking any first time home buyer loans, you may be happy to find out that you don’t actually have to be purchasing your first home.

The U.S. Department of Housing and Urban Development classifies a first time home buyer as a person who has not owned a home in three or more years.

So if you owned a home, sold it, rented from someone else for three years and are purchasing another home, you would qualify as a first time home buyer.

We’ve dissected all of the first time home buyer programs, found the best and then compiled them into one comprehensive guide for you!

1. FHA First Time Home Buyer Loan Program

Backed by the Federal Housing Administration, FHA loans are the most popular and widely used form of first time home buyer government programs that exist.

Implemented due to the string of foreclosures in the 1930s, FHA loans allow borrowers with credit scores of as low as 500 to secure loans without coughing up an exponential down payment.

Borrowers with a credit score of 580 or higher can qualify for a loan with as little as 3.5% down. Borrowers with a credit score of 500-579 can qualify for a loan with a 10% down payment.

The duration is offered in 10-, 15-, 20- and 30-year fixed loans and 5- and 7-year adjustable rate loans. However, additional requirements must still be met to qualify.

The borrower must have been employed steadily and must not have filed for bankruptcy for two years leading up to the loan signing; must maintain the property as their primary residence; must not exceed more than 31% of their gross income with mortgage payments, HOA fees, property taxes, private mortgage insurance and homeowners insurance; and must have the property appraised by an FHA-approved appraiser.

One huge downfall to every FHA loan is that each borrower is required to purchase and maintain two kinds of mortgage insurance, which are paid in full upfront and through monthly installments until the loan is paid in full with interest.

2. USDA First Time Home Buyer Loan Program

The United States Department of Agriculture provides $0-down loans to first time home buyers at low rates and lenient eligibility requirements if they meet certain standards. There are more catches than an FHA loan, but a USDA loan can be a better option for those who qualify.

If you’re a city slicker, you’re already out of the running. To qualify for a USDA loan, you must purchase the home in one of the USDA’s designated rural areas, which accounts for about 97% of the nation’s rural land eligible for development. Credit scores of 640 or higher are suggested, but extra steps can be taken if your credit score is below 640.

The borrowers household income must be stable and not exceed 115% of the area’s median income as well. In addition, households with up to four members cannot make more than $82,700 per year and households of five to eight members cannot make more than $109,150 per year.

Another huge catch is that the property must not be an income-producing property, which means that farming and livestock is not allowed. It’s OK if the first time home buyer purchases old farmland, as long as nothing is being produced on the property.

3. HomePath Ready Buyer Program

The HomePath Ready Buyer Program by Fannie Mae is one of the most giving first time home buyer government programs out there. Fannie Mae is a government-sponsored entity that’s also the fifth largest financial services company in the world. That may be why they’re able to offer up such a great program to first time home buyers.

This first time home buyer program allows you to buy a Fannie Mae-owned property with a low 3% down payment and a money-back offer of up to 3% of the purchase price, which can be used as closing cost assistance on the property.

Sounds pretty good, huh? To take advantage of this offer, all you need to do is pass a 4- to 6-hour home buyer education course that costs just $75, move into the primary-residence property within 60 days of closing and purchase one of the many HomePath foreclosure homes as a first time home buyer.

Keep in mind that since you’ll be making a 3% down payment on the home, you’ll still need to pay private mortgage insurance on the property. We’d say the only catch to this awesome program is the ability to find a home in the designated area you’d like to live in. Other than that, say hello to savings!

4. HUD First Time Home Buyer Grants

Although the most popular U.S. Department of Housing and Urban Development program is an FHA loan, the government department offers a multitude of first time home buyer grants.

These federal government grants include money for down payments and closing cost assistance that never have to be repaid.

Although they are often unavailable to the general public and reserved for unique situations, including natural disaster assistance and meeting low-income thresholds, the department offered 10 different first time home buyer grants in 2018.

5. Fannie Mae or Freddie Mac

Although Fannie Mae and Freddie Mac aren’t limited to just first time home buyers, these government-sponsored entities offer down payments as low as 3%, credit scores as low as 620 and a debt-to-income ratio as high as 50%.

The catch is that they only offer up homes on the secondary mortgage market, which means the original mortgage loans came from conventional lenders and investors, which can lead to difficulty finding lenders to clear your mortgage.

6. VA First Time Home Buyer Loan Program

If you’ve never served in the United States Military, you can’t qualify for a VA loan from the U.S. Department of Veteran Affairs. Sorry. However, if you are a Veteran or active-duty service member, you may want to consider a VA loan over an FHA or USDA loan.

VA loans are great for those who qualify. The VA is one of the only programs that outfit first time home buyer loans with zero down, which means you don’t have to come up with a lump sum of cash to purchase a home.

Qualifications are less strict and they’re more affordable because they don’t require private mortgage insurance, which saves borrowers thousands of dollars through the life of their loan.

To be eligible for a VA loan, you must have served at least 90 consecutive days of wartime; served at least 181 days of active-duty during peacetime; served in the National Guard or Reserves for at least six years; or you must be the spouse of a service member who died in the line of duty.

It’s important to note that the VA doesn’t actually issue loans. Each loan comes from individual VA lenders that provide government-backed loans on the VA’s behalf.

Although there’s no credit score minimum for VA loans, borrowers with a credit score of 620 or better will have an easier time securing a loan.

7. Good Neighbor Next Door

The good news is that the U.S. Department of Housing and Urban Development’s Good Neighbor Next Door government program isn’t limited to only first time home buyers.

The bad news is that it’s only available to select professions, which is limited to teachers (pre-K through 12th grade), law enforcement officers, firefighters and EMTs.

If you fall within that select population of job titles, there’s even better news for you. You can buy a home for 50% below the list price if you agree to live within a revitalization area and commit to living in the home as your primary residence for at least 36 consecutive months.

The reason HUD can sell these homes for 50% below the list price is that they are owned by the Federal Housing Administration and have been foreclosed on. It’s a great way to get people, who oftentimes have a positive impact on communities, to move into homes that may not be in the most affluent of areas.

As with many other first time home buyer government programs that are meant to assist people, the program has a few curveballs that can put a twist into things.

The most challenging task about purchasing one of these homes is that law enforcement officers, firefighters and EMTs must work within the jurisdiction in which the home is in, and teachers must teach in the school district where the home is located.

If the home buyer doesn’t meet all requirements of living in the home and working in the same jurisdiction for 36 consecutive months, they are then required to pay the other 50% of the home’s value.

If they do meet all requirements and decide to move out of the house 37 or more months after moving in, the 50% discount applies to the home.

Bonus

PenFed Foundation Dream Makers Program

The PenFed Foundation Dream Makers Program isn’t a government program, but any Veteran, Active- Duty or Reserve Military personnel or National Guard member will definitely want to know about the first time home buyer grants.

Dream Makers offers a 2-to-1 match of up to $5,000 of the applicant’s mortgage at closing. The mortgagee must secure their own mortgage and contribute a minimum of $500 to qualify.

In addition to the military eligibility, the borrower must have a gross income of no more than 80% of the area median income; have a 97% LTV loan and 30-year fixed mortgage; and qualify as a first time home buyer or have lost their primary home through divorce or disaster.

In addition to the government and private assistance programs available nationwide, there are also many first time home buyer programs that are specific to people who reside in certain cities and states.

Year after year, California, Florida and Texas are frontrunners in providing their citizens with the most first time home buyer programs.

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