First-time Home Buyer Programs Explained

February 21, 2024

Tim Clarke

Discover easy-to-understand explanations of first-time home buyer programs to help you secure your dream home.

First time home buyer programs help people buy their first house. These programs give money to first time buyers. The money can be used for the down payment or closing costs.

There are many different first time home buyer programs. The programs come from the government, states, cities, and private companies.

Each program has its own rules on who can get the money.

Why Are There First Time Home Buyer Programs?

First time home buyer programs exist to help people. Buying a first house is hard. Saving money for a down payment takes a long time.

First time buyer programs make it easier to buy that first home.

Some first time buyer programs target certain groups. For example, programs for veterans, teachers, or nurses. The programs help these important groups buy homes.

Types of First Time Home Buyer Programs

There are 5 main types of first time home buyer programs:

Down Payment Assistance

Down payment help is the most common program. It gives money for the home down payment. Sometimes closing costs are covered too.

Down payment help does not have to be repaid. The money is yours to keep. You don't pay it back later.

Second Mortgages

Second mortgage programs give a second loan. This loan covers the down payment.

Later, you slowly repay this second mortgage. It works just like the repayment of your first mortgage loan.

Tax Credits

Some programs give tax credits. A tax credit reduces the amount of tax you pay.

Let’s say you get a 2000 tax credit. When you file taxes, you would owe 2000 less.

Tax credit programs let you keep more money. That extra money can help with your home purchase.

Low Interest Rates

Special low rate programs exist. You get a lower interest rate on your mortgage.

A lower rate saves money each month. It makes the monthly payment lower. Over time, a lower rate can save thousands.

Forgivable Loans

Forgivable loans are loans that don't need to be repaid. These loans turn into grants.

To get the loan forgiven, you must stay in the home for a set time. For example, 5 years. If you move before then, you repay the loan.

Who Offers First Time Home Buyer Programs?

First time buyer help comes from these main sources:

Federal Government

The big federal program is the Mortgage Credit Certificate. This program gives a tax credit up to $2000.

Some buyers may also still qualify for the old First Time Home Buyer Tax Credit. Although it is no longer active, some still claim leftover credits.

State Governments

Almost every state now offers help for first time buyers. States have various down payment programs. Some states also offer tax credits.

California, Florida, New York and Texas have large state programs. State websites have details on eligibility and how to apply.

Cities

Many cities now have local home buyer programs. These programs are usually down payment help or low rate mortgages.

Large cities like Chicago, Houston, Philadelphia, and San Diego have programs. Even smaller cities offer help. Check your city's website to learn more.

Mortgage Companies

Some mortgage companies offer special first time buyer programs. These programs help buyers that use that company.

Ask your potential mortgage lender about first time buyer products. Big lenders like Chase and Wells Fargo offer these options.

Are There Grants for First Time Home Buyers?

Some first time buyer programs give grants. Grants are free money that does not have to be repaid.

True grants are rare. More often programs call themselves grants but are actually forgivable loans. Forgivable loans do eventually have to be repaid if you sell early.

The best source of true grant money is from nonprofit organizations. Nonprofits in your city may offer down payment grants.

Do First Time Home Buyers Have to Pay Back the Money?

Many first time buyer programs give you money that you keep forever. The down payment help does not have to be repaid.

However, some programs do require payback. Second mortgage and forgivable loan programs give money upfront. But you slowly repay them over time.

Always read the full program rules to understand repayment terms. Don't assume help is free money with no strings attached.

How Much Money Do First Time Home Buyer Programs Give?

First time buyer programs give between 1000 and 15,000 usually. Although amounts can go higher in expensive markets.

The money can be used for the home down payment. Sometimes closing costs are covered too.

Loan programs give enough money to cover the full down payment. With those programs your down payment is $0.

Do First Time Home Buyers Have to Pay Higher Interest Rates?

First time buyers can qualify for low down payment conventional loans. These loans have good rates.

Special first time buyer programs sometimes have slightly higher rates. However, the rate difference is usually small. Often only 0.125 to 0.25% higher.

Programs with much higher rates are not worth using. A program should not raise your rate more than 0.5%.

Who Qualifies for First Time Home Buyer Programs?

Each program has its own eligibility rules. But some common requirements exist:

  • You must be a first time buyer. This means you have not owned a home in the past 3 years.
  • Income limits apply. Your income must be below a set limit. These limits vary by state and program.
  • Home price limits exist. The home cannot cost more than a certain amount. Home limits are based on the average prices in your area.
  • Occupancy rules require you live in the home as your main residence. It cannot be a vacation or rental property.
  • Good credit is needed. Most programs require a minimum credit score around 640. Some go as low as 600.
  • Debt-to-income ratios are restricted. Your current debt payments must be below a set percentage of your income. Often 45%.
  • Homebuyer education is required. You take a class to learn about buying and owning a home.
  • Citizenship status may be checked. Many programs require you be a US citizen or permanent resident.

Always verify you meet the full eligibility rules before applying.

How Do You Apply for First Time Home Buyer Programs?

To use a first time buyer program, follow these steps:

  1. Research programs in your state and city. Compare the options to see which you qualify for.
  2. Choose a first time buyer program and review the eligibility rules. Make sure you qualify before applying.
  3. Complete a homebuyer education course if required. This course prepares you for homeownership.
  4. Get pre-approved for a mortgage. Shop mortgage lenders to find the best rate and program fit.
  5. Submit your program application and documents. Each program has its own application process.
  6. If approved, you get a program approval letter. This letter can be shown to real estate agents and home sellers.
  7. Make an offer and enter escrow on your new home. Give your program approval to the escrow company.
  8. The program funds will be used at closing to lower your down payment and costs.
  9. Close on your new home and move in!

The program makes the home buying process easier. But make sure to give yourself time for the application. Don't wait until the last minute.

Buying your first home is a big milestone. First time buyer programs help you achieve the dream of homeownership. Check if you qualify and apply for these helpful programs.

Final Thoughts From Tim

As Tim Clarke, a seasoned real estate agent with 17 years of experience, I've seen firsthand the benefits that first-time home buyer programs can bring.

These programs can significantly ease the financial burden, making the dream of homeownership more attainable.

My advice to first-time buyers is to research and understand the variety of programs available.

Each has its unique benefits and eligibility criteria. It's crucial to find the one that best suits your financial situation and long-term goals.

Work with a trusted real estate professional who understands these programs and can guide you through the process.

Their expertise can be invaluable in navigating the complexities of the real estate market and ensuring a smooth home buying experience.

Lastly, always be proactive. Attend home buyer education courses, keep an eye on your credit score, and maintain a healthy debt-to-income ratio.

These steps will not only increase your chances of qualifying for these programs but also prepare you for the responsibilities of homeownership.

Remember, buying a home is a significant milestone. With the right preparation and guidance, it can be a rewarding and enjoyable journey.

Trust in the process, and don't hesitate to seek expert advice when you need it.

FAQ

What is a first-time home buyer program?

First-time home buyer programs are initiatives designed to help individuals or families purchase their first home.

These programs often offer financial assistance, such as down payment assistance, tax credits, or low-interest loans.

Who qualifies for first-time home buyer programs?

Eligibility varies by program, but generally, you must be a first-time home buyer, which typically means you haven't owned a home in the past three years.

Other common requirements include income limits, home price limits, and residency requirements.

Do first-time home buyer programs require repayment?

Some programs do require repayment, such as second mortgage programs, while others, like down payment assistance, do not.

Always read the full program rules to understand repayment terms.

How much money can I get from a first-time home buyer program?

The amount varies by program and location, but typically ranges from 1,000 to 15,000. Some programs may offer more in high-cost areas.

Do I have to pay a higher interest rate if I use a first-time home buyer program?

Not necessarily. While some programs may have slightly higher rates, many offer competitive rates. It's important to shop around and compare options.

What is a forgivable loan?

A forgivable loan is a type of loan that doesn't need to be repaid if certain conditions are met, usually related to the length of time you live in the home.

How do I apply for a first-time home buyer program?

The application process varies by program, but generally involves researching and choosing a program, ensuring you meet eligibility requirements, completing any required education courses, and submitting an application.

Can I use a first-time home buyer program if I'm not a U.S. citizen?

Many programs do require you to be a U.S. citizen or permanent resident, but requirements vary. Check the specific eligibility criteria for each program.

What is a homebuyer education course?

A homebuyer education course is a class that prepares you for buying and owning a home.

These courses often cover topics like budgeting, the home buying process, and understanding mortgages.

What is a Mortgage Credit Certificate?

A Mortgage Credit Certificate is a federal program that provides a tax credit for a portion of the mortgage interest you pay.

This can lower your overall tax bill and make homeownership more affordable.

Tim M. Clarke

About the author

17 years as a Realtor in the Research Triangle, Tim seeks to transform the Raleigh-Durham real estate scene through a progressive, people-centered approach prioritizing trust & transparency.

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