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How Does First-Time Homebuyer Assistance Work?

How do you buy a house? Renters often don’t know. But first-time buyers have tools at their disposal and, oftentimes, access to mortgage assistance.

NEW YORK – If you are a first-time homebuyer, you likely have several questions regarding the home-buying process. Let’s start by defining what qualifies as a first-time homebuyer. Generally, this term refers to an individual purchasing their first principal residence. The U.S.

Department of Housing and Urban Development (HUD) provides a broader definition, including the following:

  1. Someone who hasn’t owned a principal residence in the three-year period before purchasing a new home.
  2. An individual who has never owned a principal residence, even if their spouse was a homeowner.
  3. Single parents who previously owned a home with their ex-spouse.
  4. Displaced homemakers who only owned property with their spouse.

First-time homebuyers often have access to special benefits, such as lower down payments, grants, and assistance with closing costs, sponsored by state and federal governments. Some lenders also offer incentives and special loan products for first-time homebuyers. Those with low-to-moderate incomes may qualify for grants or loans that do not require repayment if they stay in the home for a specific period. Additionally, certain individuals may be eligible for closing cost assistance based on their circumstances.

These options are provided through government-sponsored programs, with eligibility criteria based on credit scores, income levels, and local lender requirements. If you believe you fall into one or more of these categories, you might be able to take advantage of the programs I am about to discuss.

U.S. Department of Agriculture (USDA)

The USDA’s homebuyer assistance program focuses on homes in “qualified” rural areas.

These areas include open countryside, rural towns (with fewer than 2,500 people), and urban areas with populations ranging from 2,500 to 49,999 that are not part of larger labor market areas (metropolitan areas). The USDA guarantees the home loan, often requiring no down payment, and the loan payments are fixed.

Federal Housing Administration (FHA) Loans

FHA loans are mortgages ensured by the Federal Housing Administration (FHA) and offered by FHA-approved lenders. Lenders must meet specific criteria to be “FHA-approved,” and in case of borrower default, the FHA backs the loans issued by these lenders.

This backing provides lenders with protection against losses. FHA loans offer competitive interest rates, lower down payments, and reduced closing costs compared to conventional loans.

Borrowers must meet certain requirements to qualify for these loans.

First-time homebuyers with low-to-moderate incomes may qualify for grants or loans that do not require repayment if they remain in the home for a specific period. To find an FHA lender near you, visit HUD Lender List Search.

U.S. Department of Veterans Affairs (VA)

The VA supports first-time homebuyers who are active-duty military members, veterans, and surviving spouses. VA loans offer competitive interest rates, require no down payment, and the VA guarantees a portion of the loan. With a VA loan, first-time homebuyers are not typically required to pay for private mortgage insurance (PMI), and there is no minimum credit score for eligibility.

Moreover, if the borrower faces mortgage trouble, the VA can negotiate with the lender on their behalf.

Federal Home Loan Bank System

Check if your bank is a member of the Federal Home Loan Bank system. Membership in this system strengthens financial institutions and enables them to better serve their communities. The Federal Home Loan Bank system consists of 11 regional banking cooperatives that provide member institutions with wholesale lending, credit, and related financial services, supporting affordable housing and economic development.

Down payment and closing cost assistance may be available if your chosen bank is a member and you meet the approval criteria.

First-time homebuying can be an exciting journey when you are aware of the numerous opportunities available throughout the purchasing process. Always conduct thorough research to access programs that can help you achieve your goal of owning your first home.

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