Are you a first time home buyer? If so, you may be worried and a little stressed about the entire process. After all, buying a house is a major expense, and the amount of paperwork you have to do to get a mortgage can be overwhelming. Then there are the upfront costs involved—you have to be able to cover your closing costs and your down payment. Fortunately, there are options for first time home buyers that don’t include the traditional 20% down payment and offer very reasonable interest rates. Here are some of these grants and programs you might want to look into.
The Federal Housing Administration or FHA doesn’t offer loans directly, but it does guarantee loans. What this means is that they offer protection to lenders in the event that you default on your loan. The lender won’t lose money because FHA would cover their losses. That means the lender is more likely to offer a loan to those who may not have stellar credit or a large amount of income.
FHA loans also have a few other benefits. The interest rate is competitive with rates on conventional loans. The down payment is usually 3.5% of the purchase price, which is very doable for many buyers. FHA also allows family members to gift buyers with the total amount of the down payment, so even if you don’t have the cash on hand, you can still purchase a home. Much of this is dependent on your credit score, but as long as it’s above 580, you should be able to take advantage of all of these benefits.
FHA Section 203(k) Loans
Another option the FHA offers is their Section 203(k) loans. These loans, which again are only backed by the FHA, are specifically for those who are looking to purchase a run-down home and renovate it. The lender looks at what the home will be valued at after you’ve made renovations to it. They then allow you to borrow enough money to purchase the house and make significant improvements to it. Your down payment will usually be around 3%.
The Good Neighbor Next Door Program
The U.S. Department of Housing and Urban Development (HUD) offers a program called Good Neighbor Next Door. This program is designed to help revitalize certain areas of specific cities and states. You do have to live in one of the areas that HUD has marked for the program, and you do have to work in certain industries. This program is available to those in law enforcement, education, and emergency services. You also have to live in the home for at least 36 months.
If you qualify, however, you can often save as much as 50% on the cost of the home. Do keep in mind that these homes are often located in run-down areas or neighborhoods that have been somewhat abandoned. The goal of the program is to revitalize these areas, after all. If you’re willing to take on a project home and meet the qualifications, the Good Neighbor Next Door program may be perfect for you.
If you’re a veteran, are in the military, or are the surviving spouse of a military member, you can take advantage of a loan through the U.S. Department of Veterans Affairs. Like FHA loans, these mortgages don’t come from the VA, but the VA does protect the lender from loses. These loans don’t require any down payment, which is very attractive. They also have no credit score requirement or require you to have private mortgage insurance.
The National Homebuyers Fund
The National Homebuyers Fund actually offers grants (money you do not have to repay) to first time home buyers. They will provide as much as 5% of the down payment as a gift if you meet specific income requirements. This can be ideal for those who do not have the money on hand to make a down payment and cannot find someone willing to gift them the money.
Various Local Programs and Grants
The programs listed above are all national programs available across the U.S. There are also many regional, state, and even city-level programs that can assist you with your down payment or with securing a mortgage. Often, your lender will know about such programs, while other times, your real estate agent may be able to point you towards one of these resources. You can also research potential programs online. Each program will have its own guidelines and specifications, of course, so be certain to read all the information provided carefully.
These different programs make it much easier for people to own their own home. Even if believe you don’t make enough money to afford a mortgage, you should investigate these options. You may find that you can get a mortgage with such a low-interest rate that you actually pay less to own a home than you would pay to rent.