A Guide To First-Time Home Buyer Programs, Loans & Grants

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There’s a lot to think about when buying a house – and it’s normal to have questions, especially if it’s your first time. You might be wondering about some general first-time homebuyer tips, or the best way to get down payment assistance or help with your closing costs.

Here, we’ll cover some of the most advantageous programs for first-time homebuyers, so you know what options are available.

Types Of First-Time Homebuyer Programs

First-time homebuyer costs can seem overwhelming. But, luckily, there are several options for assistance with your down payment and closing costs, including charitable and government-sponsored programs. Local and federal tax credits can lessen the bite, and there are also educational programs that can offer help at every step.

Down Payment Assistance

A down payment is a large initial expense when you buy a home. A down payment is required for most types of mortgages. Though many first-time homebuyers believe that they need a 20% down payment to get a mortgage, many lenders issue loans to first-time buyers with as little as 3% down.

DPA Loans

Not sure you can cover a down payment on your own? You may also be able to get down payment assistance (DPA) through a few specific types of loans to reduce the amount you have to put down.

A few options include second mortgages, deferred payment loans and forgiven loans.

Loans structured as a second mortgage must be paid off at the same time as your main mortgage.

 Deferred payment loans must be paid in full when you move, sell, refinance or pay off your main mortgage.

Loans can also be forgiven over a set number of years – but will need to be repaid when you move, sell, refinance or pay off your main mortgage if you move before that set number of years expires or you otherwise violate the terms of forgiveness.

DPA Grants

You may be able to get DPA through grants, which don’t have to be repaid. Program requirements for loans and grants may vary, so it’s best to check with your local or state government for details on any first-time buyer down payment assistance programs.

Government-Backed Loans

A loan backed by the federal government can also help qualified first-time homebuyers purchase with no down payment – we’ll cover these types of loans in more detail below.

Tax Credits

Unfortunately, you can no longer take advantage of the Housing and Economic Recovery Act’s $7,500 credit for first-time homebuyers. The program ended in 2010.

However, you can still save money on your taxes through various deductions. Federal and state deductions can lower your taxable income.

For example, you can deduct your mortgage insurance costs from your federal taxes if your mortgage is worth less than $750,000. This includes private mortgage insurance (PMI) and mortgage insurance premiums (MIP) associated with FHA loans, as well as the guarantee fees for USDA loans. Additional deductions and credits may be available through your state or local government.

Closing Assistance

Like down payment assistance, there are government-sponsored and private programs that can help you pay closing costs. Closing costs are additional fees you pay at the end of the mortgage process. Closing costs are typically 3% – 6% of the total cost of your home loan. Like down payment assistance, closing cost assistance can come through a grant or loan.

You can also look to your seller for help with closing costs, with seller concessions. The seller may be able to help with attorney fees, real estate tax services and title insurance. They can also help pay for points up front to lower your interest rate and contribute to property taxes.

Homebuyer Education

You can take advantage of online educational programs and resources if you aren’t sure how to start your home search. A good first-time homebuying class can be free or low-priced and can teach you about loan options, the buying process and how to apply for a mortgage. Browse real estate courses online and look for ones aimed at first-time homebuyers.

Not sure where to start? Zing University is a free online course from the mortgage experts at Rocket Mortgage®. Zing University takes you through the steps to buy a home, teaches you about mortgage types and can even put you in contact with a local agent to help you become a more confident buyer.