First-Time Home Buyer Loans: Navigating Your Incentives And Options

Whether you’re 25 or 55, buying your first home is a significant milestone in anyone’s life.

Like all milestones, it’s bound to be accompanied by a rich mix of emotions: excitement, anticipation, and more than a little bit of anxiety and nervousness. Buying a house is probably the most expensive thing you’ve ever bought, or even thought about buying, in your entire life.

Unless you’re one of the exceptionally few people fortunate enough to be able to pay cash, you’re going to need a mortgage. Understanding the various financing options available to first-time home buyers will help you make healthy decisions about your financial future.

First-time home buyer programs can make a substantial difference in your ability to afford your very own dream home.

In this blog post, we’ll explore the different options and incentives that are available to you so that you can make an informed decision.

What Are the Types of First-Time Home Buyer Programs?

There are multiple types of loans available to first-time home buyers like you. Here are a few notable options:

Federal Housing Administration (FHA) Loans

FHA loans can be extremely popular with first-time home buyers. Since they are backed by the federal government (the FHA), these loans are designed to improve access to homeownership.

This means that these loans tend to have more lenient requirements with regard to credit score and down payment requirements, which can otherwise sometimes be a barrier for would-be homebuyers.

In lieu of a larger down payment, you will need to pay both up-front and annual mortgage insurance premiums with these loans. FHA loans also typically have an upward limit in terms of how much they can pay, which means you have a cap on the price of the house you can afford—or at least, what you can afford without a second source of financing.

Veterans Affairs (VA) Loans

Veterans and active-duty service members of the United States Armed Forces, as well as certain qualifying members of the National Guard and reserves, may qualify for this type of loan. Like FHA loans, VA loans are provided by private lenders but are backed by the United States Department of Veterans Affairs.

This means that they often come with favorable terms that include benefits such as a low down payment (or, often, no down payment at all) and relaxed credit requirements.

With VA loans, while you often don’t have a down payment, you will have to pay a VA Funding Fee, which helps keep the program running. However, this can be rolled into the loan itself, meaning you can pay it back as part of the mortgage.

VA loans must also be for your primary residence, so you can’t use them to purchase second or third homes (unless you intend to switch and live there full-time). Also, by their nature, they are exclusionary as they are only limited to veterans and their families.

United States Department of Agriculture (USDA) Loans

The USDA offers this program to help first-time home buyers afford homes in rural areas. USDA loans can be very affordable to first-time home buyers due to their competitive interest rates and their ability to roll things like down payments into the overall mortgage amount.

As first-time home buyer programs go, the USDA loans do have some drawbacks. For one, similar to the FHA loan program, these loans usually cap the maximum home price that you can purchase. Since they are used to revitalize rural areas, they also can’t be used for homes in most urban or suburban areas.

Conventional Loans

You might not think that, as a first-time home buyer, you would be approved for a conventional home loan. However, you might not be correct in this assumption.

While big, impersonal national banks might not be willing to work with you in your unique circumstances and ensure that you can afford their conventional home mortgages, local banks and credit unions typically offer their own first-time home buyer programs that include reduced down payments, waived fees, or other features that make it less burdensome for you to be approved for a mortgage.

What Are the Benefits of First-Time Home Buyer Programs?

No matter where you’re getting your first-time home buyer loan from, you may be able to get assistance that takes several common forms. Obviously, you should check with your provider of choice to see what, specifically, is on the table for a given program, but you can usually expect to see features like:

• Down payment assistance. Down payments can be waived entirely (as in VA loans), or some lenders may give you the option to fold the down payment into the mortgage itself, so you pay for it in an installment plan over a set period of time.
• Lower interest rates. While higher rates can significantly impact the total price you’ll pay over the life span of a mortgage, some of these first-time home buyer programs offer highly competitive rates that may be better than what you’d have access to elsewhere.
• Relaxed requirements. Conventional home mortgage loan providers may demand a certain credit score or that you have a certain debt-to-income (DTI) ratio. Some loan providers, however, may waive these requirements or may take alternatives into account, for instance, if you expect to get a promotion or a raise due to completing a degree that would significantly improve your DTI ratio in the future.

These are just some of the ways in which first-time home buyer programs make it easier for new home purchasers to wind up in a dream home that’s their very own, instead of renting endlessly. If you’re a first-time home buyer looking to purchase, make sure you look at your local lending institution’s options to see how they can help you fulfill your dream of homeownership.

If you’re looking for first-time home buyer programs in northeast Wisconsin, consider the options at Capital Credit Union. You’ll be moving into your new home in no time.

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