Mortgage Assistance Programs for First Time Home Buyers

The collapse of the housing market in 2008 has certainly made the task for a 1st time home buyer more difficult than ever before. Unless you have a significant amount of cash and an excellent credit rating, banks and mortgage companies are more stringent in their requirements for loaning money. But through the help of first time home buyer mortgage assistance programs, it is possible, even in the current market, to secure a mortgage for your first home.

In discussing mortgage assistance programs for first time buyers, it's important to note that assistance comes in several different forms. Most common are programs designed to help first time buyers come up with a down payment. The typical down payment required just 30 years ago was usually 20%. Mortgage lenders got away from that sizable amount during the 80s and 90s, but now it seems to be back as the standard that banks are looking for. Because it's so difficult for first time home buyers to save that much cash, there are programs available that will provide the down payment in a variety of ways.

Another form of mortgage assistance is a municipal grant which offers a low interest loan in exchange for agreeing to purchase one of the many properties designated for the program by the municipality. These programs vary by municipality and come with certain restrictions that may make them unattractive.

A third type of first time home buyer mortgage assistance comes in the form of grants or low cost loans made by charitable organizations. This type of assistance is the least utilized of all due to the fact that charitable organizations are facing their own funding problems in the current financial crisis.

Down Payment Assistance

With down payment assistance, there are two common options: an outright grant which does not need to be repaid if certain conditions are met, or a low interest loan that gets repaid as part of your mortgage payment. These grants and loans typically come from state governments - although it's not uncommon for local municipalities and counties to offer such grants as well. There are as many different down payment assistance programs as there are government entities, but we'll look at New York State as just one example.

The New York State legislature created an entity known as the New York State Housing Finance Agency to assist first time home buyers with closing costs and down payments. The assistance comes in the form of a low interest loan under a program known as SONYMA. The SONYMA program provides the loan to cover down payment and/or closing costs, with no preset monthly payment required and the option of total debt forgiveness after ten years. For first time home buyers that meet a specific income threshold, the down payment assistance loan will not be forgiven, but will still have an interest rate well below the industry average.

Obviously, New York's SONYMA program has income requirements to prevent those without a legitimate need from accessing the funds. In some urban environments in the state, income requirements may be relaxed somewhat as a means of filling vacant houses. But due to the fact that income conditions change constantly, what you may or may not qualify for will depend on when you're looking to buy your house.

Municipal Grants and Low Cost Mortgages

One of the most popular programs for first time home buyers in urban areas offers grants and low interest loans as a means of encouraging home buying within the city environment. Using the New York State as an example again, the state's major cities like Buffalo, Rochester, and Albany all have their share of vacant houses within city limits. In an attempt to get those houses filled, the cities offer first time home buyer grants. The grant money comes from state and county funding but is administered by the city.

With such grants, the first time home buyer receives cash from the program to pay for down payment and closing costs. In addition, bank financing for the mortgage is guaranteed by the program to all qualified buyers. Interest rates are low, and the sale prices of the designated houses are well below market value, enabling first time buyers to get into their first house with a relatively low monthly mortgage payment. The one catch to these programs is that first time home buyers must agree to live in the house for a minimum of ten years. This is to prevent investors from taking advantage of the program and getting houses at dirt cheap prices.

So far the programs have proven successful in New York's mid-sized cities, meaning fewer vacant houses which need to be demolished by the municipalities. First time home buyers are able to afford home ownership, then sell the house after the ten year period has expired and upgrade to something bigger and nicer. Along with these mortgage programs, the municipality will sometimes also offer grants to encourage remodeling, due to the fact that many of these houses are in moderate need of work.

First Time Home Buyer Assistance from Charitable Organizations

This last type of first time home buyers assistance is becoming harder and harder to find for obvious reasons. Nonetheless, there are charitable organizations providing cash grants and low cost first time home buyer loans. Examples of such charitable organizations include Ameridream, Newsong Down Payment Assistance Program, Hart Gift Program, and Partners in Charity. Due to the nature of the economy and the home buying market, these charitable gifts and grants can be discontinued at any time.

FHA and HUD programs

No discussion about first time home buyer mortgage assistance programs would be complete without discussing FHA and HUD. Both the FHA and HUD are federal agencies involved in the housing industry. While neither organization provides grants or low cost mortgages in the same vein as the other entities we've discussed, they do provide closing cost loans and mortgages with interest rates lower than the industry average.

FHA and HUD programs have very stringent income requirements and are very strict in the way the loans are structured. Furthermore, securing a loan from FHA or HUD does require a bit of effort on the part of a home buyer. But with the help of a competent real estate agent and mortgage broker, the process can be completed relatively quickly.

Buying your first home is an exciting and rewarding experience. It is the dream of many Americans to own their own homes and build equity for the future. First time home buyers with sufficient income and credit history should be able to find a way to get their first time mortgage. Where grants and low cost loans are available, obtaining your first mortgage is that much easier. Check with your real estate agent or mortgage broker to find out what types of first time home buyer assistance programs are available to you, before you begin your home search.