Get a Government Loan As a First-Time Home Buyer

May 7th 2016

With mortgage rates at an all-time low, many renters are financially stable enough to afford a mortgage payment, but may be unsure if they qualify for a mortgage loan or can find the resources to make a down payment. Luckily, the federal government has provided help to first-time homebuyers that will ensure that more people realize their dreams of homeownership.

FHA Loans

Image courtesy of ThinkProgress

Mortgage loans provided by the Federal Housing Administration (FHA) are the most common loans received by first-time homebuyers. FHA loans have a low down payment because up to 96.5 percent of the home’s purchased price can be financed. As a result, most purchasers only need to save around 4 percent of the price of the home for a down payment. A $150,000 home could be purchased for as little as a $5,250 down payment. Additionally, FHA loans have low closing costs and more relaxed credit score requirements than private lenders. An FHA-approved lender can assist you in determining if you qualify.

Loans for Veterans or Servicemembers

If you or your spouse are an active military member or veteran or if you are the surviving spouse of an armed forces member, you may be eligible for a mortgage loan through the Department of Veterans Affairs. A VA loan could allow you to purchase a home without a down payment at all, depending on your credit and your service record. Similar to an FHA loan, a VA loan also offers reduced mortgage loan rates and closing costs.

USDA Rural Loans

Depending on where you are thinking of purchasing a home, you may be eligible for the USDA’s Rural Development Single Family Housing Guaranteed Loan Program. This program assists purchasers who have a low to moderate income in purchasing a home that is in a designated rural area. If your area qualifies, you could receive 100 percent financing on your mortgage loan, meaning that no down payment would be required. These loans do have income requirements, and eligible houses will not be found in all areas. Your state’s USDA office can assist you in locating a qualifying property to purchase.

American Dream Downpayment Initiative

If you are required to make a down payment on your mortgage loan but cannot afford it or the closing costs, you may be able to receive funding from the American Dream Downpayment Initiative (ADDI), which is run by the Department of Housing and Urban Development (HUD). Low-income families seeking to become first-time homebuyers could receive up to $10,000 or 6 percent of the amount of the mortgage loan in order to assist with the down payment and closing costs. The ADDI program is now run through state and local governments, so you will have to confirm with your local HUD office that the area where you live is participating. There are also stringent income restrictions, so potential homebuyers should be sure that they qualify for ADDI assistance prior to finalizing a mortgage loan.

Charity or Gifts

If you cannot qualify for a government program or need additional assistance, you may need to borrow money for a down payment from family and friends. For FHA loans, the majority of a down payment can be provided as a gift from family or friends. For many private loans, however, the homebuyer will usually have to prove that he or she provided the money for the down payment from their own income or savings.

Prior to 2008, various charitable organizations provided grants to homebuyers to assist with down payments and closing costs. The rules regarding down payments were changed in 2008 by President Bush and, for the most part, are no longer available.

Some organizations, employers or unions may provide financial assistance for down payments. Teachers, firefighters, police officers or employees of large corporations may be able to take advantage of programs offered through their work or business. Consult with your Human Resources Department or union representative to see if any such programs are available to you.

With a little planning, many families can save the 3.5 percent down payment required by FHA or other government loans. Determine which type of loan is for you, and start saving to make your dreams of homeownership come true.


More in category

Related Content