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5 Helpful First-time Homebuyer Programs

Owning your own home — it’s the American dream. Actually, it’s only been the American dream since about 1934, when the Federal Housing Administration was created. At the time, only 40 percent of Americans owned their own homes; most people were renters. It was difficult to buy a house back then, as mortgage loan terms were expensive and repressive. So few people dreamed of it. But the creation of the FHA helped millions of folks become first-time homebuyers, a role it’s played ever since [source: U.S. Department of Housing and Urban Development].

Since then, the U.S. government has encouraged homeownership through its many home-loan programs, touting it as a way to improve one’s future prosperity and noting it fosters better citizenship, among other reasons [source: Glaeser]. Today, many argue it’s not necessary, or even desirable, to create a nation filled with nothing but homeowners. If a person can’t handle the associated costs such as property taxes, insurance and repairs, it may not be a good idea to buy. Still, most Americans clearly think it’s preferable. As of the third quarter of 2014, a full 64.4 percent of Americans owned their own home [source: Callis and Kresin].

If you’ve been longing for a place of your own, but never seem to be able to swing it, don’t give up. There are a wide variety of programs in place, both public and private, that exist to help people purchase their first home. Here are five of them.

FHA loans

Perhaps one of the easiest ways to purchase your first home is by taking out a Federal Housing Administration (FHA) loan, the loan that kick-started American homeownership. FHA loans work well for first-time homebuyers for several reasons. First, you only need to come up with a small down payment — sometimes as low as 3.5 percent of the home’s purchase price. For a $200,000 home, that would be $7,000. Closing costs are also low, and those costs can be folded into the loan. Finally, qualifying for an FHA loan is relatively easy. Why? Because an FHA loan is a mortgage insured by the federal government. Since the feds are willing to pay a claim to your lender if you default on your mortgage, lenders are willing to lend you the money, and can offer you a pretty good deal on rates and costs [source: U.S. Department of Housing and Urban Development].

The downsides? There’s a limit on how much you can borrow (limits vary by locale), and the home you want to buy must be worth the selling price. Sometimes the processing of the loan can take longer than that of a traditional mortgage. You will also have to pay private mortgage insurance (PMI); it’s generally required for any mortgage without a 20 percent down payment, but PMI payments for FHA loans are steeper than those for conventional mortgages [source: da Costa]. Still, an FHA loan can be a pretty sweet deal.

VA loans

One perk of serving, or having served, the U.S. is that you may be eligible for a Veterans Affairs (VA) loan. Specifically, service members, veterans, National Guard and Reserve members and eligible surviving spouses may take advantage of this program, providing they meet certain service and income requirements. VA loans work much like FHA loans. You obtain them through a local lender, and a portion of the loan is backed by the U.S. Department of Veterans Affairs should you default. This means the lender can give you good rates, and it’s not as difficult to qualify for a loan [source: U.S. Department of Veterans Affairs].

VA loans may be one of the best deals out there. Eligible borrowers sometimes don’t have to put anything down on the house – an incredible perk, since traditional mortgages can require as much as 20 percent of the home’s purchase price as a down payment. Additionally, since the Veterans Administration is backing part of your VA loan, lenders don’t require you to purchase PMI insurance, which can save you hundreds of dollars each month [source: Military].

Dept. of Agriculture/Rural Development Loans

If you’re looking to purchase your first home in a rural area of the country, the U.S. Department of Agriculture offers various rural development loans to help. The Rural Housing Guaranteed Loan is available for those with incomes up to 115 percent of the area’s median income. Applicants must also be currently without adequate housing, yet able to afford mortgage payments, taxes and insurance. Your credit history must also be reasonably good.

Section 502 loans, or rural housing direct loans, are geared toward low-income individuals or families; you can use the loans to buy, renovate or build a home in the country. A variation on this is the Section 502 Mutual Self-Help Housing Loan, which is geared at very low-income households looking to build their own home [source: United States Department of Agriculture].

Habitat for Humanity

Habitat for Humanity is a nonprofit Christian housing ministry that builds and repairs homes throughout the world for families who can’t obtain conventional financing. The homes are built using volunteer labor and donated materials and sold at no profit, which makes them quite affordable. Local Habitat affiliates take new-home applications and select the families using their own guidelines. In general, though, eligible families meet these criteria [source: Habitat for Humanity]:

  • Have a household income that’s 30 to 50 percent of the median income in their area
  • Are citizens or legal residents
  • Receive regular paychecks that fall within minimum and maximum amounts, depending on household size
  • Have had a savings account for a while
  • Have good credit

Most families who are selected to receive a new home are required to make a $500 down payment, attend homeowner education classes and contribute 300 to 500 hours of work on their home or someone else’s [source: Habitat for Humanity].

Clearly, it’s more difficult to obtain your first home through Habitat for Humanity than by using one of the previously mentioned programs because the group can only build so many homes at a time and in any given locale. Still, if you meet the criteria and are willing to put in some sweat equity, it’s definitely worth applying.

State First-time Homebuyer Programs

Most, if not all, states have some type of first-time homebuyer program. You can find out what’s available in your area by contacting your local government housing office. Typically, potential homeowners must meet various criteria regarding income levels and credit ratings. Down payment assistance may be available as well; sometimes first-time homebuyers don’t even have to repay the amount.

While all programs differ, here are the basics of Ohio’s first-time homebuyer program as an example:

  • Applicants must meet Ohio Housing Finance Agency (OHFA) income limits, have a credit score of at least 640, have a signed purchase and sales agreement for a qualifying property and qualify for the loan being requested.
  • Properties must meet purchase price limits, which vary by county.
  • Applicants must also fall into at least one of these four categories:
  • Never owned real estate
  • Active serviceperson or veteran
  • Purchasing a home in one of OHFA’s target areas
  • Never owned or had an ownership interest in their principal residence in last three years

If you qualify, there’s no specific loan you’d get, as with the FHA, VA or Department of Agriculture loans. But in general you’d receive a loan with better rates, lower fees and more flexible payment plans than if you approached a lender independently [source: Ohio Housing Finance Agency].

McManus, Melanie Radzicki. “5 Helpful First-time Homebuyer Programs” 03 November 2014. 24 November 2015.

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