If you're a first time home buyer just getting started in the real estate market you may be wondering about first time home buyer assistance programs. If you've been told that there are plenty available and they are very easy to get, be aware that's only partially true.
Depending on the state in which you live, first time home buyers assistance may be plentiful. For example, states like Indiana and Colorado are in no short supply. On the other hand, there are some states like Kansas where your options are limited. Knowing what's available in your state and local area plays an important role in helping you find your first home.
Types of first Time Home Buyer Assistance Programs
First time home buyers assistance typically comes in one of three forms: low interest mortgages, down payment assistance programs, and rehabilitation loans/grants. In some cases first time home buyers will be eligible for all three types of programs. But in most cases, only one or two will apply. The following is a brief description of all three types of programs and what they offer.
Low Interest Mortgages
Low interest mortgages are typically reserved for individuals and families classified as low to middle income earners. Such loans are almost always backed by FHA or HUD and can be one or more percentage points lower than the standard conventional loan. While a 1-point difference may not seem significant, it could add up to tens of thousands of dollars over the life of a mortgage. Sometimes such low interest loans also provide for low or no closing costs.
Downpayment Assistance Programs
Downpayment assistance programs are generally grants or low interest loans that home buyers use to pay downpayment and closing costs. In the case of a grant, this is money the home buyers can use which need not be repaid. Unfortunately, such grants usually carry with them requirements and restrictions, including a mandate that the home buyer live in the purchased house as his primary residence. A failure to honor the terms of such a grant may subject a homeowner to repayment.
When downpayment assistance comes in the form of a low interest loan, that loan is typically at a rate of 0% to 3% and is classified as a secondary loan behind the primary mortgage. In some cases these loans are forgivable if the buyer remains in the home for a specified amount of time and then settles his mortgage through sale or full payment. Other times loans must be repaid with funds taken from the monthly mortgage payment.
Rehabilitation Loans/Grants
Rehab loans and grants work essentially the same way as the two previously mentioned programs. The only difference is that they are aimed at providing assistance to buyers who prefer to purchase an older or abandoned home that needs extensive repair. The estimated cost of repairs is usually figured into the mortgage amount.
Obtaining First Time Home Buyers Assistance
There is no magic formula to obtaining first time home buyers assistance. It's simply a matter of knowing where to look and how to apply. The first thing to understand is that most of this help comes through programs funded and maintained by the individual states. While the federal government does make some programs available through FHA and HUD, the programs are administered at the state level or through local banks and lending institutions. You will not be able to get first time home buyers assistance directly from the federal government.
With that said, the best place for you to start is to go to the HUD or your individual state website. Both of these resources are generally up-to-date in regards to housing and financing options. Often times the HUD page will even contain information about county and local programs that the state website does not advertise. After looking at both websites, and taking notes about anything that interests you, the next thing to do is to sit down with your real estate agent or mortgage broker. If you can get them both at the same time, that's a bonus.
The reason for involving your real estate agent and mortgage broker is the fact that they will know the details behind these programs. They will be able to offer guidance as to which ones are right for you and how to proceed. In most cases, you will apply for your first time home buyers assistance in the early stages of your home buying process. In all likelihood you will need to have a purchase offer in hand before you get a definite letter of approval. However, unless your credit is extremely poor or you don't meet program requirements, it's unlikely you'll be turned down.
Combining First Time Home Buyer Assistance Programs
The credit crunch experienced in the U.S. over the last several years has made the FHA mortgage program far and away the most popular means of securing the home loan. While a change in FHA regulations has made it more difficult for some first time home buyers to obtain a down payment through a gift from friends or family, the FHA still allows enough options to make things fairly easy. As an example, it's possible to combine a low interest mortgage with a down payment assistance program in the same package. Such a deal would allow first time home buyers to get into their first house with substantially less cash out-of-pocket and lower payments throughout the life of the loan.
Because FHA rules allow first time home buyers to receive as much as 6% of the home's purchase price to be applied toward closing costs, it's now fairly easy to cover both down payment and closing costs without the need for large amounts of cash. If sellers are willing to contribute to closing costs, or cover them completely, a buyer could take the entire sum from a down payment assistance program and use that to fund his down payment in full.
First time home buyers assistance programs are fewer in number today than they've been in the past. Nonetheless, they do exist if you know where to look. A good mortgage lender who is creative and knowledgeable will be able to find programs suitable for you.