Are you looking to buy a home for the first time but are unsure about loans? Let's look at what to know about first time buyer programs.
Real Estate

5 Things to Know About First Time Buyer Loans and Programs

Homeownership is a dream of millions of people, and it requires money and knowledge about the homebuying process.

Too often, getting a mortgage loan is out of reach due to growing down payment and closing costs, which can equal 20% of the home’s selling price. Without access to these funds, a first-time buyer can fall short. 

The desire to help more people become homeowners is where first-time borrower’s programs come into play. They are run by city and county municipalities and funded by the U.S. Department of Housing and Urban Development (HUD).  

Keep reading for five things you should know about first-time buyer loans and programs.

1. What Does a First Time Buyer Programs Include?

The most significant benefit of the first-time borrower’s program is the down payment assistance. They also contain educational components that are just as vital.

First, you’ll learn the home buying process. This includes the importance of understanding your credit score and how to create a monthly budget. 

Other valuable lessons include knowing the difference between FHA, conventional, and adjustable-rate mortgages. 

The program providers are committed to ensuring people are educated before shopping for a home.

2. How Much Money Can You Borrow

Successful completion of first-time borrowers’ programs helps buyers understand how much money they can borrow to purchase a home. In most instances, this amount is based on your income and debt-to-income ratio. 

Your mortgage should not exceed 30% of your monthly income. If you have a high balance credit card or personal loan debts, it will impact the amount a lender is willing to loan.

3.  Connecting with a Realtor and Mortgage Lender

Mortgage lending programs are an extension of first-time borrower’s programs. Mortgage lenders willing to write mortgages for homebuyers offer reduced interest rates to individuals that complete the program.

Realtors are also available to assist buyers in finding homes based on the criteria of the program.

4. Home Search Criteria

Don’t be surprised if your home search criteria have geographical boundaries. First-time buyer programs sometimes exclude new construction loans or homes in planned communities. They may also exclude condominiums. 

You will also have to purchase within the city where you completed the program.

5. Program Restrictions

Before accepting grant money from first-time borrowers, programs read all documents and ask questions before signing. Most programs have stipulations regarding repayment of grant money if the home is sold within a specified time period.

In some instances, the downpayment is treated as a second mortgage. When the home is sold, the downpayment assistance is prorated for each year in that timeframe. The remainder is repaid to the mortgage lending program as part of the closing costs when the home is sold.

Get Ready to Receive the Keys to Your New Home

Take advantage of the opportunities offered in a first-time buyer program. The money will help you open the door to your new home, and the education piece will help you become an informed house shopper.

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