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Home Ownership For First-Time Buyers

Home-Buying Guidance to Get You Started
Written by
November 15, 2022
min read

Buying your first home can be intimidating. That's where this guide lends a helping hand. Below is an outline of the many mortgage programs offered to first-time homebuyers, along with a multitude of tips and tricks to better understand the process.

The Different Mortgage Programs for First-Timers

First-time home buyers should be comforted by having several financial assistance programs to help with the upfront expenses like closing costs and down payments. 

Check out the five popular mortgage programs:

Conventional Loans with Low Down Payment

Four programs provided by conventional mortgage providers, Fannie Mae and Freddie Mac, are aimed toward first-time home buyers. Such loans are ideal for flexible down payment and credit score requirements. These programs are available through lenders like banks, credit unions, and online brokers. Discover each option below:

  • HomeReady: Fannie Mae's low down payment mortgage, HomeReady, subsidizes loan costs and rates to serve as a flexible option for low and moderate-income buyers.
  • Home Possible: Freddie Mac's affordable program for low and moderate-income buyers. Home Possible also offers a three percent minimum down payment and a credit score requirement of 660.
  • HomeOne: Another Freddie Mac-backed program for first-time buyers, HomeOne, provides more flexible financing regardless of location or income.
  • Conventional 97: Backed by Fannie Mae and Freddie Mac, 97 percent loan-to-value options also require just a three percent down and a minimum credit of 620, but this program has no income limitations.

Government-Backed Loans with Low or No Down Payment

First-time home buyers also have options through government agencies and organizations. These loans tend to have more lenient limitations, sometimes allowing borrowers to forego making down payments. Approved lenders can be found all throughout the U.S. Following are the three most common:

  • FHA Mortgage: Loans guaranteed by the Federal Housing Administration allow borrowers to become homeowners with a credit score of 580 and as little as 3.5 percent down or even a score as low as 500 with ten percent down. 
  • USDA Mortgage: Insured by the U.S. Department of Agriculture Rural Development, these loans are available to first-time homebuyers in eligible rural areas with no down payment requirement and a 620 minimum credit score.
  • VA Mortgage: For qualified U.S. military members (active-duty, veterans, and eligible spouses), the U.S. Department of Veteran Affairs offers borrowers 100 percent financing with a minimum 620 credit score. 


Down Payment Assistance

Most mortgages require an initial payment, often the most significant part of the closing costs when purchasing a home. Alas, many lenders offer down payment assistance (DPA) programs to help cover this expense. First-time home buyers can receive DPA support through either a grant or a low-interest loan. 

  • DPA Loans: These loans reduce how much borrowers must put down for home purchases. Examples include deferred payment loans, forgivable loans, and second mortgages. Each program has specific repayment terms and restrictions.
  • DPA Grants: Some local and state-approved lenders will also provide first-time buyers with assistance through grants that do not require repayment. Inquire with your regional government agencies for more information on local DPA programs in your area.


State and Local Government Aid

Most home-buying financial assistance for first-timers comes from local governments, both state and municipalities. Grants, low-interest mortgage loans, or other programs are offered. 

Find out what sponsored assistance is available in your state or local government in the complete list of state-specific programs on the U.S. Department of Housing and Urban Development's (HUD) website.


Additional Assistance Programs

Other mortgage programs for first-time buyers include:

  • Employer-Sponsored Programs: Some employers offer housing incentives such as contributing to an employee's down payments and closing costs. This assistance can come in many forms, such as grants or forgivable loans. Research potential employer-assisted housing (EAH) programs at your workplace. 
  • Nonprofit Assistance Programs: Many charities and nonprofit organizations provide educational and financial support when buying a home for the first time. Low- and moderate-income borrowers can qualify for mortgage programs with standards based on character rather than risk assessment. For instance, the Neighborhood Assistance Corporation of America offers low-rate mortgages without requiring a down payment or closing costs.
  • Tax Credit Programs: Local and federal tax reductions can save homeowners money by lowering their taxable income. There are various tax breaks worth considering, such as for the cost of interest, mortgage insurance, solar panel installation, and even buying your first property.


Tips and Tricks on the Home-Buying Process

Since you have decided to purchase your first home, learning what the home-buying process entails is best. It can sometimes be chaotic with the house searching, negotiating, and excess paperwork. Yet, it can be simplified. Below, we have outlined some pointers to follow.

The Mortgage Application Process

An initial step to buying a home is applying for a loan. To do so, buyers must approach a mortgage lender and get pre-approved. Industry experts recommend shopping around several lenders to find the best deal, even suggesting applying to five options. A 2018 analysis from Freddie Mac revealed that borrowers who sought additional quotes save more over the life of the loan.  

When applying, each lender will require specific documents. For fast financing, collect the necessary information ahead of time. Examples include tax records, employment paystubs, bank statements, asset accounts, debt records, and credit history. Someone who can assist in preparing such documents is a real estate agent.


What to Look for in a Real Estate Agent

Finding a competent real estate agent can make a difference in the beginning stages of home ownership. Agents know the ins and outs of the real estate industry and can steer you in the direction that best suits you. A reliable agent is a supportive advocate throughout the home search and purchase, from finding lenders to negotiating with sellers to closing the deal. 

A great way to find the best agent is by asking many questions. How long have you been a real estate agent? How are you different from other agents? Are you experienced in finding homes in my price range? Are you knowledgeable about my desired area of living? Do you have referrals I can contact?


How to Prepare Financially for a Mortgage

In shopping for a home, a buyer must realize how much they can afford. While determining that amount is what the lender does, estimating yourself may be helpful. Start by checking your credit to clear up discrepancies or find ways to make quick improvements. An accurate credit report and excellent credit scores go a long way in qualifying for a mortgage. 

Next, consider the loan conditions you may qualify for. That includes the down payment, term length limit (15 or 30 years), and whether you prefer a fixed or adjustable interest rate. Research all the options before speaking with a mortgage broker. 


Home Maintenance and Upkeep Costs

The average person in the U.S. spends about 29 percent of their income on housing costs. These expenses do not end with the mortgage, home insurance, or property taxes. Maintenance, such as fixing minor issues, taking preventative measures, and DIY projects, can also add up. 

It is recommended that homeowners set aside a small percentage of their home's price each year into savings. That account should be reserved for upkeep and repairs. 

What If You Can't Afford a Home

Homeownership is not always a practical option. Even when mortgage rates are at all-time lows. Timing is essential, and waiting may be the best option. Sometimes it is a matter of monitoring the economy until it fluctuates in your favor. Or it is utilizing extra time to improve your financial situation and chances. 

Understanding how home ownership works for first-timers will improve your experience and should not involve many surprises. 

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