Buying a home is an exciting endeavor. However, it's a big step that includes many responsibilities. If you're a first-time homebuyer, you may have questions about meeting the requirements for a mortgage loan and overcoming common hurdles, such as your down payment and closing costs. Luckily, there is assistance available for buyers who have yet to own a home, and qualifying for these programs may be easier than you think. Learning more about first-time homebuyer programs is a great way to get one step closer to moving into your dream home.
Types of first-time buyer programs
First-time buyer programs are designed to help people get past common hurdles to home ownership. These programs offer various types of assistance and have different qualifying factors.
Down payment assistance (DPA)
A down payment can be a major hurdle for new homebuyers. The average cost of a home in the U.S. is $396,100. To make a 5% down payment, you'd need nearly $20,000. Saving up this amount of money can be a challenge, but there are two main types of down payment assistance to help you overcome that barrier.
DPA loans
Down payments for typical mortgage loans range between 3.5% and 10%. If you can't come up with the entire sum, you may be able to get certain loans to reduce the amount you have to pay upfront. Second mortgages, deferred payment loans, and forgiven loans can be used to obtain a partial or full down payment. Each loan type must be paid off at the same time as your main mortgage when used for a down payment. Deferred payment and forgiven loans must also be paid in full when you move, sell, or refinance your property.
DPA grants
Unlike loans, grants do not have to be repaid. Each grant has specific eligibility requirements. For example, you may be required to earn an income within the area's lower two quartiles and meet a minimum credit score requirement. The National Homebuyers Fund is a widely known example of this type of down payment assistance.
Government-backed loans
Some mortgage loans are insured by the U.S. government, making them less of a risk to the lender. The lower risk means lenders can afford to offer options with a low down payment or none at all.
Closing assistance
When saving for a down payment, many prospective homebuyers forget about closing costs. These fees that are paid at the end of the mortgage process can be as much as 5% of your mortgage loan. Closing cost assistance programs feature loans or grants that offset or eliminate closing costs; some are included as part of a down payment assistance program. They are provided by federal organizations, state or local organizations, and nonprofits.
Federal assistance programs
Some of the most common mortgage loans the federal government provides include provisions to assist with closing costs. For example, the United States Department of Agriculture (USDA), Federal Housing Administration (FHA), and Veterans Affairs (VA) loans all provide some assistance for closing costs.
State and local assistance
Each state offers different mortgage assistance programs. MassHousing and the Massachusetts Housing Partnership are great places to learn more about first-time homebuyer assistance in Massachusetts.
Nonprofits and private assistance programs
Local nonprofit organizations provide homebuyer aid, including education and assistance with upfront costs like down payment and closing.
Federal first-time buyer programs
Federal buyer programs are offered nationwide and come from different sources. Federal first-time buyer programs may provide down payment and closing cost assistance, lower interest rates, or other ways to cut costs.
Government-backed loans
Government-backed loans decrease lender risk. The lower risk allows lenders to pass down benefits, including lower down payments and interest rates, to prospective homebuyers. The three types of government-backed loans are FHA loans, USDA loans, and VA loans.
Good Neighbor Next Door (GNND)
Your profession may help you get assistance for a first-time home loan. The GNND program sells repossessed homes to first-time buyers at half price. However, it's not available to everyone. With a focus on community contributors, GNND eligibility is reserved for teachers, firefighters, law enforcement personnel, emergency medical technicians, and other community contributors.
State and local first-time homebuyer programs
Federal programs aren't the only options for homebuyer assistance. State and local programs exist in every state and provide additional options for first-time buyers. The U.S. Department of Housing and Urban Development website is a great resource for finding state-specific assistance and local programs for homebuyers. Massachusetts has many local programs designed to assist homebuyers. For example, MassHousing provides affordable mortgage financing to low- and moderate-income buyers, and the Massachusetts Housing Partnership sponsors the ONE Mortgage program for first-time homebuyers.
Charitable or nonprofit first-time homebuyer programs
Different regional and national charities and nonprofits provide financial assistance for first-time buyers. Programs may apply to all first-time homebuyers or only to underserved groups.
Habitat for Humanity
Perhaps the most well-known housing nonprofit, Habitat for Humanity provides homebuyers with homes that are built by volunteers and are much more affordable than other options. To be eligible for a Habitat home, you must be able to meet these qualifications:
-
Require better housing as your current one is poorly built, unhealthy, damaged, or inadequate. Unaffordable rent or mortgage may also be a qualifying factor, along with living in a home that is inaccessible for your disabilities.
-
Willing to partner with Habitat to build your own home and the homes of others or to volunteer at a Habitat ReStore.
-
Able to pay an affordable mortgage.
Neighborhood Assistance Corporation of America (NACA)
The NACA is a nationwide nonprofit that offers financially unstable households mortgage counseling and education. NACA mortgages promote housing affordability because they require no down payment, no closing costs or fees, and no mortgage insurance.
First-time homebuyer FAQs
What is a first-time homebuyer?
You may be surprised to know that a first-time homebuyer doesn't have to be a person who has never owned a home. If you haven't owned a principal residence in the last three years, you're classified as a first-time homebuyer. Other circumstances can also make you eligible for the classification:
-
You're a single parent who has only owned with a former spouse while married.
-
You're a displaced homemaker and have only owned with a spouse.
-
You've only owned a principal residence, not permanently affixed to a permanent foundation.
-
You've only owned a property that is not in compliance with state, local, or model building codes and cannot be brought into compliance for less than the cost of constructing a permanent structure.
Who qualifies for first-time homebuyer programs?
If you or another person involved in the home purchase haven't owned a residential property within the last three years, you could qualify for a first-time buyer program. Each program has different eligibility requirements. The best way to learn about the first-time homebuyer programs you may qualify for is to talk with an experienced local real estate professional.
Partner with Samantha Steward
First-time homebuyer assistance programs work in a variety of ways to help potential homebuyers become homeowners. If it's been over three years since you've owned a home, you may be eligible for these programs. As a native Cape Codder, Samantha Steward has extensive experience working with first-time homebuyers in Plymouth. Get in touch to learn about available first-time buyer assistance programs that can help you become a homeowner.