Billshark knows that first-time homebuyers have a tough time these days. Before the Great Recession of 2008, buying a home was much easier. In response to the financial crash, politicians decided to blame the victims (i.e., homebuyers) instead of those financial speculators who played fast and loose with regulations.
Regardless, those same politicians raised the bar for the average American when it comes to buying a home. Downpayments are now generally required to be 20 percent of the purchase price, and credit scores must be much higher than in years past.
Hard on younger buyers
This is especially hard on first-time buyers, who may have to wait years to save enough money.
In addition, the younger you are, the lower your credit score tends to be. This is because your credit score is based largely on your credit history. Less history = lower score.
But Billshark wants to let you in on a few programs that might offer some relief to younger buyers or those with less money available to use as a downpayment.
One clarification: the definition of a “first-time buyer” can vary, depending on the program. For some, it means never having owned a home. For others, it can mean not having owned a home in the past three years.
The Federal Housing Administration (FHA) offers loans to those with credit scores between 500 and 579 for a 10 percent downpayment. Those with scores above 580 can purchase a home with only a 3.5 percent downpayment.
In addition, down payments for FHA loans can be gifts from family or friends, which is absolutely not the case when obtaining a conventional mortgage (if you can’t prove you earned the downpayment yourself, a conventional mortgage won’t be approved).
Finally, closing costs on an FHA loan are “rolled into” the loan; that is, they become part of the total cost of the loan, which you pay back over the life of the loan.
The U.S. Department of Agriculture (USDA) offers loans for low-to-moderate income purchasers in rural areas, which actually covers nearly 97 percent of the country. The income requirements and limits vary by region. These loans do not require any downpayment.
Any active or retired veteran is eligible for a Veterans Administration (VA) loan, which requires no downpayment or mortgage insurance.
A similar program, called a Native American Direct Loan (NADL), is available to Native American veterans.
Good Neighbor Next Door
This Department of Housing and Urban Development (HUD) program, originally designed only for teachers (pre-K through 12th grade), has since been expanded to include emergency medical technicians (EMTs), firefighters, and police officers. Qualifying buyers can obtain a loan with just a $100 downpayment, and homebuyers can receive up to half off of the purchase price of homes located in HUD-designated “revitalization areas.”
Fannie Mae or Freddie Mac
Fannie Mae and Freddie Mac are private mortgage lending firms sponsored by the federal government. Their first-time buyer programs require only a three percent downpayment, which can be a gift from a family member or friend. These generally require a credit score of 620 or better, as well as private mortgage insurance (PMI), which can raise the total monthly payment.
HomePath HomeReady Program
This program, offered by Fannie Mae, seeks to help first-time purchasers buy foreclosed homes. Buyers who complete an online buyer education course can then qualify for up to three percent closing cost assistance.
State and local assistance
Because many states and cities are looking to attract new residents, they have implemented various programs available to first-time buyers. These can take the form of grants (which don’t have to be repaid) or low-interest loans that roll closing costs and/or the downpayment into the loan.
To learn more about these or other types of programs and grants, talk with a real estate agent or check out the various government entities’ websites.
And if you’re looking to save money to buy a home, or for any other purpose, let Billshark look over your bills. This service is absolutely free. If we can save you money—as we’ve done for countless others—you pay only 40 percent of the total saved.