Mortgage Dove

First-Time Homebuyer’s Guide: What You Need To Know

The process of buying a house isn't easy for those who are new to the process. In the end, there is a myriad of things to do, tasks that you must complete, and requirements that you could be worried about making a costly mistake. However, first-time buyers enjoy particular advantages designed to help new buyers to enter the real estate market.

To make it easier to understand the process to ensure you get the best out of your purchase, this is a breakdown of the things you should think about before you buy and what you should expect from the purchasing process. There are also strategies to ease the process following the time you buy your first home.

What Is a First-Time Homebuyer?

The term "first-time homebuyer" generally is a term used to describe a person who buys the primary home for the first time. First-time homebuyers typically qualify to receive special benefits like low down payments, special grants, and assistance that are arranged by federal and state government agencies. Some lenders also provide incentives for first-time homebuyers as well as special loans.

Qualifications of First-Time Buyers

A first-time homebuyer, as per to U.S. Department of Housing and Urban Development (HUD) , is a person who meets one or more of the following criteria:

  • A person who has not owned a primary residence for the past three years. If you've had a home but your spouse has not, you may be able to purchase the same property as first-time homeowners.
  • A single parent who only owned a house with a former partner while married.
  • A homemaker who was displaced and only owned a house with a spouse.
  • A person who has had a primary residence that was not permanently affixed to a permanent foundation as per the current rules.
  • A person who has owned a home that was not compliant with local, state, or model building codes, and that can't be brought into compliance with less than the expense of building a permanent construction.

Benefits of Being a First-Time Homebuyer

A home purchase is an essential part of your American dream. First-time buyers can benefit from government programs, tax incentives, and federally-backed loans if they don't meet the minimum down amount--ideally, at least 20% of the total purchase price in a traditional loan -- or are part of some category. You may also be eligible as a first-time purchaser even if you're an experienced buyer.

Types of First-Time Home Buyer Programs

Costs for a first-time home buyer may seem daunting. However, many loan programs can help with your down payment and closing costs, such as government and charitable programs. Tax credits for federal and local taxation will help reduce the impact, and educational programs could assist at any point.

Let's look at some of the more sought-after first-time home buyer loans and grants.

  1. Down Payment Assistance (DPA)

The down payment is an important initial expense when you buy an apartment and is necessary for all types of mortgages. Many lenders are willing to accept down payment assistance to cover the initial expenses of a down payment.

Down payment assistance programs  are usually grants or low-interest to no-interest loans. Many are only available to first-time buyers. The particular assistance programs you're eligible for will affect how you're able to use your money and how you'll be required to repay them.

DPA Loans

Are you not sure if you can cover the down payment yourself? You could also qualify for down payment assistance programs by using specific types of loans to lower the amount you need to make. There are a variety of options available, including the second mortgage, deferred payment loans, and forgiven loans.

The loans that are structured as a second mortgage have to be paid back in the same way as your primary mortgage. Deferred payments must be paid in full at the time you relocate, sell, refinance or make payments on your principal mortgage.

The loan can also be forgiven over a specified period, however, it must be paid back when you move, sell, refinance or take care to pay off your principal mortgage before when the specified number of years expires, or if you violate any other conditions of forgiveness.

DPA Grants

It is possible to receive DPA through grants that don't need to be repaid. The requirements for loan programs and grants can differ, and it's advisable to inquire with the local or state government for information on any down payment for the first-time buyer down payment assistance programs.

  1. Government-Backed Loans

A loan guaranteed by federal funds may assist first-time buyers to buy a home with no down payment.

  1. Tax Deductions

Unfortunately, you are unable to longer avail The Housing and Economic Recovery Act's $7500 credit for first-time home buyers. The program ended in 2010. You can reduce the amount you pay for taxes by taking different deductions. Deductions from state and federal taxes can reduce your taxable income.

For instance, you could deduct the full amount of mortgage insurance for a primary residence and one vacation home from your federal taxes if the mortgage is under $750,000 ($375,000 for married couples with a separate filing). The deduction is currently extended to the 2021 tax year. It covers the private mortgage insurance (PMI) and mortgage insurance premiums (MIP) that are part of FHA loans in addition to the guarantee fee for USDA loans and the funding fee associated with VA loans.

You may also deduct the cost of interest that you pay for loan amounts up to the above limits for a primary and a second residence. These are two of the most significant homeownership deductions. Additional credits and deductions may be offered through your local or state government.

  1. Closing Assistance

As with down payment assistance, there are government-sponsored as well as private programs that will assist you in paying closing costs. Closing costs are the additional charges you have to pay at the end of obtaining a mortgage. The typical closing costs range from 2%-6% of the total cost of the home loan. Similar to down payment assistance, closing costs can be given through a grant or a loan.

You may also ask your seller for assistance in closing costs, including seller concessions. The seller might be able to assist you with attorney fees, tax assistance for real estate transactions, and title insurance. They could also assist in paying points in advance to reduce your interest rate and help with the property tax.

  1. Home Buyer Education

You can benefit from online educational resources and programs for those who aren't sure where to begin their home search. A first-time home-buying course  is usually inexpensive or free and will help you understand loans, buying process, and the best way to get a mortgage. Find real estate classes online and search for classes targeted at first-time home buyers.

Federal First-Time Home Buyer Programs

There are federal, state, and local programs you can utilize when you buy a home. Federal programs are available to all citizens or legal residents of the U.S. Although not everyone is eligible for each program, you don't have to be a resident of a particular state to be eligible for federal assistance. Here are a few well-known federal programs for first-time home buyers.

  1. Government-Backed Loans

Government-backed loans  permit you to purchase a house with a low downpayment or poor credit. The government guarantees government-backed loans which means they are less of a risk for lenders.

It implies that lenders can provide borrowers with a lower interest rate. There are three current government-backed loans: FHA loans, USDA loans, and VA loans. The programs each have their own set of eligibility requirements.

  1. Good Neighbor Next Door

Are you a pre-K-12 teacher, emergency medical technician, firefighter, or police officer? You may qualify for the Good Neighbor Next Door program by the Department of Housing and Urban Development (HUD). The Good Neighbor Next Door program gives a huge 50% discount on selected HUD properties. The properties offered are foreclosures and very affordable, even without the discount. It is possible to view a listing of properties on the HUD program website.

  1. HomePath (r) Ready Buyer(tm) Program

Fannie Mae offers first-time home buyers the opportunity to buy foreclosed properties at as low as 3% with its HomePath (r) program. You can also apply for up to 3% of the closing costs through the program. Fannie Mae houses sell in as-is condition, and you might have to fix a few things before your new home is moved-in ready. However, closing cost assistance could assist in making it easier to cover these costs.

This HomePath (r) Ready Buyer(tm) program is only open to first-time buyers looking to reside full-time in the house that they're hoping to buy. You'll have to complete and take Fannie's Framework Homeownership Course before you close.

State And Local First-Time Home Buyer Programs

The majority of government home buying assistance is available through state and local programs. Individual programs vary based on location. It is possible to view an entire list of state-specific purchasing resources through the HUD website.

Charitable Or Nonprofit First-Time Home Buyer Programs

You could be eligible for nonprofit or charitable assistance if you earn a low to moderate income. Nonprofits and charities are private organisations that offer financial and educational resources when you buy a home. Most nonprofits have income requirements that define who can receive assistance.

  1. Habitat For Humanity

A well-known and well-funded housing nonprofits are Habitat for Humanity, an international charity that provides "simple, decent and affordable" housing to families with low incomes. Volunteers construct homes for people who need them, and Habitat for Humanity makes no profits from the property. Their homes are cheaper than the local alternatives. Habitat for Humanity is the largest nonprofit builder in the world, having more than 800,000 homes constructed.

  1. Neighborhood Assistance Corporation Of America (NACA)

The Neighborhood Assistance Corporation of America (NACA) is a different national nonprofit organization that can assist you to buy the home you want. NACA provides "financially unstable" households with mortgage counseling and education. The team members of NACA also assist those with low incomes find lenders willing to partner with them.

NACA loans do not require a down payment or closing costs, and there is no minimum credit score. They could provide you with more specific information about possible options for homeownership. Similar to government programs, a lot of organizations and charities are region-specific. HUD maintains a listing of nonprofits across every county and state.

Employer-Sponsored First-Time Home Buyer Programs

Certain employers are now offering housing incentives to assist employees to pay down their mortgages and closing costs. Your employer could offer a grant or loan that is forgivable in time, and your labor union could provide closing assistance.

The types of programs you can use depend on what your employer has to offer. Employer-assisted housing programs usually involve joint efforts between employers and state governments. Meet with your HR or manager to find out whether your workplace provides closing costs assistance.

First-Time Home Buyer Grants and Loans For Students

If you're thinking of buying a property as a student, take note that school loans can make getting a mortgage more difficult. However, the same programs for first-time buyers are applicable.

FHA and VA loans, for instance, can be great choices for students in the current semester or graduates who wish to pay their student loan payments by obtaining a mortgage. Flexible DTI requirements can qualify with the student balance loan. A lower minimum down payment can help make the initial cost of homeownership more manageable for those who would like to leave their parent's house and have not been able to accumulate their savings.

Certain states also offer first-time homebuyer assistance specifically designed for student loan borrowers. Homebuyers who have an eligible amount of student loans or who graduated recently may qualify for programs that lower their mortgage rates, offer help with the down payment or provide specialty loans. Visit your state's website or speak with an expert in real estate to find out what options are available for you.

The Bottom Line

This guideline should put you on the road to filling the gaps in your homebuying information. When you educate yourself about the process, the less stressful it will be and the more likely you'll find the house you desire at the price you can manage. After the course is completed and you're confident, you'll be able to enjoy the peace of mind you gained having completed a significant decision in your daily life.

"Mortgage Dove makes home financing convenient for every American. You can count on us to provide a home buying experience tailored to your personal needs and financial situation. We strive to give you the peace of mind that your home financing goals can be achieved.”


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