What are some first time home buyer advantages?
Because homeownership is a known wealth driver for many individuals and families, there are many programs at the state and federal level for first time home buyers.
A lot of the programs for new home buyers target the known barriers for new home buyers, like, lower credit scores, lower down payments, and lower incomes.
The first time home buyer advantages fall into a couple of categories: federally-backed loans geared towards the needs of first time home buyers and down payment assistance from regional (state or local) programs.
Loan programs that are particularly attractive to first time home buyers
First time home buyers may have lower income and credit scores than second time buyers, so there are a few programs that are particularly popular with first time home buyers.
The most well known program is the FHA loan. FHA stands for Federal Housing Authority. FHA loans have lower income and credit requirements than conventional loans.
While FHA loans are not exclusively for first time home buyers, around 83% of people who get FHA loans are first time homebuyers.
Here are the requirements for an FHA loan:
- Minimum down payment: 3.5%
- Minimum credit score: 580 with 3.5% down or 500-579 with 10% down or more.
- Maximum Debt to Income ratio: 43%
Freddie Mac’s Home Possible Loan
While you don’t have to be a first time home buyer to qualify for a Home Possible loan, you can’t have had an ownership interest in a residential property in the last three years to qualify.
Here are the requirements for a Home Possible loan:
- Income: Your income can’t exceed 100% of the area’s median income (AMI), unless the home is located in an underserved area.
- Credit: 660
- Minimum down payment: 3%
- Down payment sources: unrestricted (does not have to be from personal funds)
- Maximum debt to income ratio: 45%
- Education requirement: At least one borrower has to have homeownership education if all borrowers are first time home buyers
Down payment assistance programs for first time home buyers
Many cities and states have down payment assistance programs. These are programs where grants are available or something called a silent second mortgage is available.
Grants are a form of down payment assistance that never has to be paid back. The best kind!
A silent second mortgage is something where it’s a loan, but it doesn’t have to be paid back until your primary mortgage is paid, or when you refinance or sell. This type of mortgage usually has a 0% or low interest rate. It’s important to fully understand the terms of a silent second mortgage.
Here is a site that has a list of down payment assistance programs by state. Or, you can google them yourself by searching for “First time home buyer down payment programs for [your state]”.
There are some very good programs available to qualify for a mortgage and become a homeowner that are more lenient in terms of income and credit than traditional mortgages.
Because homeownership is such a big wealth driver, many cities and states offer incentives and help for their residents to become homeowners so it’s worth checking out what your city and state have available.
If you really want to become a home buyer, you should check out my free resource called “The Formula” for home buyers. It gives you everything you need to know to plan your way to a successful path to homeownership.