Getting a mortgage for a new house can be a complicated process, especially for first-time home buyers. Fortunately, there are several programs that help first-time home buyers streamline the purchasing process of their dream home. To avail of the benefits of such initiatives, one must meet certain eligibility criteria specified by the lenders for loan approval. Furthermore, certain programs even let borrowers finance their dream homes without making any upfront payments.
1. Federal Housing Administration (FHA) loans
The FHA has been working on helping home buyers for decades now. First-time home buyers who face challenges when qualifying for a loan will find FHA loans advantageous in financing the purchase. Low upfront payments are a key highlight of such loans. The FHA enables eligible buyers to pay as little as 3.5% of the loan amount as a down payment. Furthermore, the application approval process is lenient compared to alternatives. Such loans also come with low minimum credit score requirements. Even people with credit scores as low as 500 can qualify for a loan.
Additionally, the reduced closing costs associated with such loans can be particularly beneficial for seniors looking to live independently in their own residences. Homeowners looking to make some energy-efficient upgrades to their property can also approach the FHA for financial aid. It is important to note that the FHA does not directly lend buyers money; instead, they back private lenders in providing mortgages. This ensures the lending agency does not deny loans to applicants who do not strictly meet their eligibility requirements. Such loans are available with any bank that is FHA-approved.
2. U.S. Department of Agriculture (USDA) benefits
The USDA also offers assistance programs for home buyers. These are targeted towards people who are looking to buy a home or upgrade their current living space. The USDA specifically focuses on people who are living in poor conditions in rural areas. The Single Family Housing (SFH) Guaranteed Loan Program provides 100% financing to qualifying home buyers. But, like FHA loans, these loans are guaranteed or backed by a bank. Since this assistance program caters to individuals from low-income backgrounds, people with incomes more than 115% of the national average are not eligible for the grant.
3. U.S. Department of Veterans Affairs (VA) benefits
The federal agency offers a series of benefits for first-time home buyers. Veterans, active-duty military members, and surviving spouses can apply for benefits from the VA. First-time home buyers can avail of competitive interest rates for home loans. In addition, the loans offered by the VA also do not require an individual to make any upfront payments for their home. When first-time home buyers use the VA assistance programs to pay for the house, they also do not have to pay for private mortgage interest (PMI). VA also relieves the applicant from the constraints of maintaining a minimum credit score to be eligible for the assistance program. Later, if the borrower has trouble repaying the mortgage, they can contact the agency for assistance. The VA will then contact the lender and negotiate with them on the borrower’s behalf.
4. Lender-offered benefits
For first-time home buyers, this assistance program can be particularly helpful as most of the benefits here are sponsored by the government to make the process of home-buying easier for individuals. Low to moderate-income individuals can qualify for different loan programs. Some grants allow such individuals to purchase a home without making any repayments until they spend a specific amount of time in the house. Depending on the person’s financial standing, they might even qualify for closing cost assistance. While these assistance programs are backed by the government, the lender checks the borrower’s eligibility by assessing their income levels, credit scores, and various local requirements before granting a loan.
5. IRA benefits
Individuals looking to finance their first home can opt to withdraw money from their Individual Retirement Accounts. But, before doing this, individuals are advised to check with the concerned authority about their eligibility. In most cases, the withdrawal is expected to go smoothly without incurring the 10% early-distribution fine. This penalty is normally incurred if any withdrawals are made before the account owner has reached the age of 59.5 years. Conditions like buying a traditional home do not restrict the purchase here. As long as the house being purchased is the person’s primary residence, the IRA funds can be used to finance it. That said, there are limitations to the amount one can withdraw from the account. Individuals might be able to withdraw as much as $10,000 to buy their first home without incurring a penalty. When it comes to married couples, if none of the spouses has ever owned a house before, the limit can be raised to $20,000.
6. Down payment assistance programs
Several states in the country provide down payment assistance for first-time home buyers. The eligibility requirements and the financial assistance offered by these programs can vary from one state to another. So, it is important to carefully evaluate the eligibility criterion, which may include income, credit history, and more, before applying. In most cases, the programs can greatly help low-income individuals or households. The key offerings may include grants, deferred payment loans, or forgivable loans. Such programs can significantly reduce the financial burden on first-time home buyers, as down payments are one of the significant challenges associated with home ownership.