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National First-Time Homebuyer Programs

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Traditionally, few achievements are more cherished in America than homeownership. We regard the home as castle, shrine, gathering place, and refuge, the bricks, mortar, and timber symbol of our liberty and independence.

Chief among the reasons we treasure homeownership is because breaking in is rarely easy. Most often, owning a home is hard-earned, not given. The path to that first set of front-door keys is paved with thrift, personal industry, reliability, and self-denial.

That is particularly true just now, a historically difficult era for first-time buyers because affordable inventory is tight. It doesn’t help that more than 40% of first-time buyers are dragged down by student loan payments, helping push the age of first-time buyers to a historically stratospheric 32 years.

None of this means would-be homeowners are doomed to lives in rundown rentals. Help for first-time buyers abounds, much of it backed by encouragement from the federal government, which has long promoted homeownership as something that promotes the nation’s general welfare.

We compiled a list of 10 businesses/agencies with first-time homebuyer programs, plus a bonus suggestion, in case you don’t meet the qualifications needed for the first 10.

First-Time Homebuyer Programs:
  1. Conventional mortgages – generally involve the classic 20% down, 30-year fixed rate mortgage offered by a private lender (banks, credit unions, mortgage companies) or two Washington-backed enterprises, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
  2. FHA loans – are insured by the Federal Housing Administration, benefiting buyers with low credit scores and little money available for a down payment.
  3. VA loans – are backed by the U.S. Department of Veterans Affairs, allowing no-down mortgages for military personnel, veterans, and their families.
  4. USDA loans – administered by the U.S. Department of Agriculture, provides 100% guaranteed mortgages for low-income borrowers in certain rural areas.
  5. Good Neighbor Next Door program – sponsored by the U.S. Department of Housing and Urban Development (HUD), assists law enforcement officers, firefighters, emergency medical technicians, and teachers.
  6. Fannie Mae or Freddie Mac loan programs – made infamous during the housing meltdown that triggered the Great Recession, guarantee conventional mortgages with as little as 3% down.
  7. HomePath ReadyBuyer program – provides 3% in closing cost support to first-time buyers who (a) complete a certified education courts and (b) purchase a foreclosed Fannie Mae property.
  8. Energy-Efficient Home mortgage program – included among FHA and VA schemes, allows borrowers to roll the cost of energy-efficiency upgrades into their primary loan.
  9. FHA Section 203(k) loan program – allows borrowers to include the funds required to pay for home-improvement projects into their single, primary FHA mortgage.
  10. Native American Direct Loan – is a VA-sponsored program offering direct home mortgages to Native American military veterans wishing to buy, renovate, or build homes on federal trust land.

Bonus: The Disruptors, going by names such as Quicken, Rocket, Better, and Divvy Homes are upstarts attempting to bring digital efficiency and access, as well as unconventional thinking, to the mortgage industry.

Conventional Mortgages

Best for: Borrowers with money for at least a small downpayment and g00d-to-excellent credit, roughly 620 and above, enabling them to qualify for the lowest rates.

Conventional loans — privately financed mortgages usually involving significant down payments and, generally, fixed rates over a 15-to-30 year period — are, far and away, the most popular option for all homebuyers, accounting for roughly 74% of all home sales, according to the U.S. Census Bureau.

Standard-issue conventional loans, made by banks, credit unions, and mortgage lenders, ideally — but not necessarily — are accompanied by a substantial downpayment, although private lenders that partner with Fannie Mae or Freddie Mac may require as little as 3% down.

Applicants for conventional mortgages may accept gifts from relatives or friends to help with their downpayment, but they must provide letters signed by the benefactors acknowledging the money is a gift, not a loan.

FHA Loans

Best for: Borrowers with low credit scores and small down payments.

The Federal Housing Administration is not a lender; instead, it partners with local lenders across the country offering mortgages to borrowers who may not otherwise qualify. With Washington backstopping portions of these loans, lenders are able to work with homebuyers with shaky credit histories.

Applicants with a credit score in the range of 580 can receive an FHA-backed loan with just 3.5% down. FHA loan interest rates often trend lower than those for traditional loans.

Additionally, applicants with debt-to-income ratios as high as 55% may qualify. Sitting down? If you’ve had a bankruptcy, but it’s more than two years old, qualifying for an FHA loan shouldn’t be difficult.

The catch? With a tiny downpayment, the borrower is saddled with monthly mortgage insurance premiums, called PMIs, that protect the lender against default.

Pro tip: Keep a sharp eye on your equity; the combination of timely monthly payments and steadily (knock wood) appreciating values in your neighborhood could get you across the 20% threshold in just a few years, eliminating the need for mortgage insurance, but it’s up to you to alert the lender about your improved circumstances.

VA Loans

Best for: Active-duty military personnel, veterans and their surviving spouses.

Out of respect for their service, active-duty military members, veterans and their surviving spouses qualify for loan guarantees backed by the U.S. Department of Veterans Affairs. Legendary among these guarantees: The zero-downpayment mortgage.

Additionally, borrowers may score a lower interest rate with VA loans than with conventional loans.

One caveat: The smaller the downpayment, the higher the funding fees.

USDA Loans

Best for: Borrowers with lower-to-moderate incomes buying a house in a rural area certified by the USDA.

As reported on its website, U.S. Department of Agriculture helps certified lenders provide low-to-moderate income households mortgages to “own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas.”

USDA mortgages allow applicants to build, rehabilitate, improve, or even relocate a dwelling in a qualifying rural area. Borrowers can be approved for up to 100% of the home’s value.

Good Neighbor Next Door

Best for: Teachers, law enforcement officers, firefighters, emergency medical technicians.

Sponsored by HUD, the Good Neighbor Next Door program offers housing aid for certain public employees, chiefly pre-kindergarten-through 12th-grade teachers and first responders.

Qualified applicants receive a discount of 50% on a home’s list price in designated “revitalization areas” (found on the program’s website). Buyers must commit to living in the home at least 36 months.

Fannie Mae or Freddie Mac

Best for: Borrowers with strong credit scores who have little to put down, or who prefer to preserve their cash.

Government-sponsored enterprises Fannie Mae and Freddie Mac establish the guidelines for loans they’re willing to purchase from conventional lenders on the secondary mortgage market.

Applicants must muster a minimum downpayment of 3% and have a credit score of at least 620 (some lenders are more stringent), plus a fairly unblemished credit history.

Keep in mind, low down payments trigger private mortgage insurance premiums. Again, you can shed those when your loan-to-value reaches 80%.

HomePath ReadyBuyer Program

Best for: First-time homebuyers willing to buy a foreclosed home, but who prefer a small downpayment and also need help with closing costs.

Offered through Fannie Mae, HomePath ReadyBuyer presents first-time buyers looking for their primary residence the opportunity to buy a foreclosure for just 3% down. Borrowers also can apply for up to 3% of their closing costs to be returned through the program.

From the There’s Always Something files: Because Fannie Mae foreclosures sell in as-is condition, applicants should be braced for repairs before they’re livable.

One other thing: Applicants must take and pass Fannie Mae’s Framework Homeownership course before closing.

Energy-Efficient Home Mortgage Program

Best for: Cash-strapped homebuyers eager to upgrade their home’s energy efficiency.

Not exclusive to first-time buyers, the Energy-Efficient Home Mortgage Program, offered in conjunction with FHA or VA loans, allows borrowers to add the cost of pricy green upgrades onto their primary loan with no effect on their downpayment.

FHA Section 203(k) Loan Program

Best for: Homebuyers in the market for a fixer-upper who lack the wherewithal to afford major renovations.

Again, FHA Section 203(k) loans are not exclusive to first-time buyers. But first-timers who want to tackle a project house should give it a look: The program calculates the home’s value after improvements are complete, and allows the buyer to borrow the necessary funds as part of their primary mortgage.

A minimum downpayment of 3.5% is required; projected improvements must cost more than $5,000.

Native American Direct Loan

Best for: Qualifying Native American military veterans, or military veterans married to Native Americans, wanting to buy, build, renovate, or move a home on(to) federal trust land.

Backed by the Veterans Administration, the Native American Direct Loan program requires no doubt payment (in most cases) or private mortgage insurance; limits closing costs; provides for a low-interest, fixed-rate 30-year loan; and is a reusable (can be used more than once) benefit.

Bonus Opportunities: The Disruptors

Best for: First-time buyers open to nontraditional ways to become homeowners.

As Amazon upended retail, Uber changed transportation, Netflix revolutionized home entertainment, and Spotify rewrote music delivery, so, too, have newcomers used digital tools to change the mortgage industry.

The disruption may be as straightforward as Quicken Loans and Rocket Mortgage, online liaisons that help homebuyers shop for conventional lenders.

Or it might as revolutionary as and, which, to say the least, bring unconventional thinking to mortgage-making.

New York-based Better, launched in 2016, digitizes the home loan process from beginning to end, promising faster, cheaper home buying.

Divvy Homes presents a fresh take on the rent-to-own space in assorted metropolitan areas: Atlanta, Cleveland, Dallas, and Memphis, St. Louis, and Tampa.

You find the home, Divvy buys it, and a portion of each of your lease payments for three years goes toward buying down the balance. At the end of the term, you apply for a mortgage and buy the home from Divvy.

About The Author

Max Fay

Max Fay has been writing about personal finance for for the past five years. His expertise is in student loans, credit cards and mortgages. Max inherited a genetic predisposition to being tight with his money and free with financial advice. He was published in every major newspaper in Florida while working his way through Florida State University. He can be reached at [email protected].


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