If you’re shopping for a mortgage, you’ve likely seen and heard plenty of offers targeted at first-time home buyers. Sometimes, these “first-time” programs aren’t limited to borrowers to first-time buyers at all, but can still be very helpful. Other times, they’re actual mortgage programs created to help people who may face challenges qualifying for a home mortgage or finding a home loan at an reasonable interest rate.
Today we’ll walk through 5 mortgage programs that can help make first-time homeownership possible for you.
1. FHA Loan
Popular with first-time homebuyers, FHA loans are designed for low to moderate income borrowers who are not able to make a large down payment on a home. Although like some loan programs, FHA does not have income limits. Depending on your credit score, borrowers can qualify for a downpayment as low as 3.5 percent. (Other loan programs typically require a much larger downpayment.) This downpayment can come from your funds as well as from a gift or a grant.
While an FHA loan can offer you a competitive interest rate, a lower down payment and closing costs, these loans do have a few drawbacks. In addition to having a limit on how much you can borrow, a downpayment of less than 20% will result in an upfront mortgage insurance premium (MIP) of 1.75% and ongoing monthly insurance. The cost is typically higher than Private Mortgage Insurance that you’d pay with a conventional loan, and unlike PMI which can be cancelled once you reach 20% equity in your home, you would need to refinance in order to remove the MIP from your FHA loan.
2. VA Loan
If you’re an active-duty military servicemember, veteran, or a surviving spouse, the U.S. Department of Veterans Affairs (VA) has a mortgage program in place to help you buy a home.
Because the VA guarantees part of the loan, lenders can offer features like favorable interest rates and for qualified borrowers, no down payment is required. There’s also no minimum credit score required and you also won’t have to pay for private mortgage insurance (PMI). The VA can even negotiate with your lender for you if it ever becomes difficult for you to make payments.
3. CHFA SmartStep ℠
This mortgage program from the Colorado Housing and Finance Authority is available to homebuyers with a mid-credit score of at least 620 and features CHFA’s lowest mortgage interest rate.
To qualify you’ll need to meet specific income limits (these can vary based on your situation), take a CHFA homebuyer education class either online or in-person, and put at least $1,000 toward the transaction.
CHFA SmartStep Plus has the same features as the CHFA SmartStep program and offers a CHFA Down Payment Assistance Grant (CHFA DPA Grant) or zero-percent second mortgage loan to help with down payment and/or closing costs.
4. Home Possible® Mortgage
There are a few ways Home Possible mortgage programs do things differently. Typically, your income as a borrower determines whether you qualify for a mortgage. But Home Possible Mortgage Program also consider factors like any rental income you’ll get from your home (for instance, if you plan to rent out a room), any personal gifts, mortgage programs from your employer, closing cost assistance programs, subordinated second mortgages, and more.
Sponsored by Freddie Mac, these mortgage programs enable you to buy a home with a down payment as low as 3% of the property purchase price and no minimum borrower financial contribution.
5. HomeReady® Mortgage
With many traits that are similar to the Home Possible Mortgage Program, the HomeReady mortgage program was created for low- to moderate-income borrowers, offering inclusive eligibility standards for financing homes in specifically low-income communities.
When considering your eligibility this program also takes into account possible rental income and non-occupant buyers, like parents. Your down payment can be as low as 3%, and there’s no minimum contribution required from your own funds. You’ll also go through a homeownership education program so you’ll feel ready to navigate the homebuying process.
Mortgage Programs Can Make Homeownership Possible
No matter which mortgage programs appeal to you, you’ll want to take a good look at your financial situation, check your credit report, pay off credit cards when you can, pay down personal loans where possible, and be sure to set aside cash in your emergency fund.
As a first-time homebuyer, you’ll want to be prepared so you can enjoy this milestone. Don’t forget to celebrate along the way – congratulations!
DISCLAIMER: This article is intended as an introduction to various loan programs. This is not an offer to extend credit or a commitment to lend.