Government Programs That Help New Homeowners

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With mortgage rates skyrocketing, buying a home — especially if it’s your first — can feel unobtainable. To help, we’ve compiled a list of government programs that aids first-time homebuyers in closing a deal on a new home.

Government Loans for New Homeowners

The most common form of government assistance that first-time homebuyers can take advantage of is loans. Government loans are particularly helpful because they typically have lower interest rates and little to no down payments. With a government loan in your pocket, obtaining homeownership can be much easier, especially if you don’t have the cold hard cash for a down payment or a particularly impressive credit score. The only downside of government loans is that they usually have strict criteria, waiting lists, limited real estate options, or sometimes function on a lottery system.

Federal Housing Administration (FHA) Loan Program

This homebuyer assistance program is provided by the Federal Housing Authority and distributed through the U.S. Department of Housing and Urban Development (HUD). This initiative has been around since 1934. It’s designed to help a homebuyer afford their first mortgage by providing insurance on loans that reduce repayment and foreclosure risk, making the loan more affordable.

The name for this program is slightly misleading, as the FHA does not provide the loan. Instead, it insures a mortgage loan from a private, FHA participating lender against default. This system allows eligible homebuyers with lower credit scores, or those without money for a sizable down payment, to make their first home purchase. While extremely valuable to new homeowners, you do now have to be a first-time homebuyer to qualify.

FHA home loans provide the following benefits:

  • Allows your loan provider to accept lower down payments, as low as 3.5%.
  • Don’t require borrowers to have a good credit score .
  • If you have negative financial marks in your history, like bankruptcy, you can still qualify.

Eligibility requirements for FHA loans are less stringent than others on this list and include the following:

  • FHA-approved appraiser must appraise your home.
  • The home must be your primary residence, not a second home or incitement property.
  • The price of the home must be within regional FHA loan limits.
  • You’re required to pay a mortgage insurance premium (MIP).
  • Your debt-to-income ratio must be less than 43%.
  • You must have a steady income and proof of employment.

Veterans Affairs (VA) Loan

A VA loan is an umbrella term that covers several different types of loans backed by the U.S. government and managed by the Department of Veteran Affairs. Like FHA loans, VA loans are not directly distributed by the VA office. Instead, they insure and provide guarantees to approved mortgage lenders, allowing veterans to receive more favorable loans. The benefits of VA loans include:

  • No down payments
  • Competitive, low interest rates
  • Limited closing costs
  • No private mortgage insurance (PMI)

Here is a list of all the different VA loans you can choose from:

Loan Benefits 
VA Purchase Loans Standard purchasing loan with no down payments, low closing costs, and no PMI.
Cash-out Refinance This program allows you to take money out of your home equity to put toward life events like home improvement, debt removal, or payment for schooling.
Interest Rate Reduction Refinance Loan (IRRRL) This loan allows you to refinance existing loans to get a lower interest rate.
Adapted Housing Grants This grant allows servicemembers with permanent or total-service disabilities to purchase a home, adapt an existing home, or build a new home that accommodates their disability.
Native American Direct Loan (NADL) Available to Native American Service Members or their spouses, this loan allows you to buy, build, or improve a loan on trust land.

To qualify for VA loans, you must have served in a branch of the U.S. Armed Services and also fulfill at least one of the following requirements:

  • Served 181 days or more during peacetime.
  • Served 90 or more consecutive days of active duty during wartime.
  • Served more than six years with the national guard, or 90 days with the national reserves under title 32 and 30 of those days being consecutive.
  • If you’re a spouse of a service member who died in active duty or as a result of service-related injury or disability.

You can check VA.gov’s Housing Benefits page for more information on VA loans.

United States Department of Agriculture (USDA) Loan

USDA loans allow first-time homebuyers, or low-income homebuyers, to qualify for and purchase a home in USDA-approved locations. USDA loans always require homebuyers to move to rural areas but provide generous benefits like no down payments and low interest rates. These loans are extremely valuable for those willing to relocate to out of the way locations, but they typically have steeper credit score requirements.

Here is a quick list of USDA loan benefits:

  • No down payment
  • Competitive interest rates
  • No PMI
  • No prepayment penalty

To qualify for USDA loans, you must fulfill the following requirements:

  • You must be a U.S. citizen or a permanent resident with a green card
  • Meet minimum credit score requirements (typically 640)
  • The home must be your primary residence, not a second home or incitement property
  • Fall at or below minimum income requirements, which are based on municipality
  • You must be in good standing with any other federal programs or loans
  • The property is located in a USDA-recognized recognized eligible area

Good Neighbor Next Door Program

This program is sponsored and monitored by HUD and aims to help would-be homeowners in community-centric professions looking to move into revitalized areas. Through this program, specifically eligible properties are put on a close listing, only accessible to those inside the program. These homes will stay here for seven days, and during that time, participants in the program can purchase them at significantly reduced prices, typically up to 50%.

To qualify for the Good Neighbor Next Door Program, you must meet the following criteria:

  • Must be moving into a revitalized area
  • Must work in one of the following professions:
    • Emergency medical technician
    • Teacher
    • Firefighter
    • Law enforcement officer

A Potential for Future Homeowners: First Time Homebuyer Tax Credit

In 2021, the Biden Administration introduced the First-Time Homebuyers Tax Credit (also called the First-Time Homebuyer Act of 2021). This first-time homebuyer program is designed to help medium to low-income families afford their first single-family home by offering a dollar-for-dollar tax credit equal to $15,000 on their mortgage.

Applicants must fall within strict household income limits, and the homes must meet purchase-price limits. Unfortunately, the bill has yet to be signed into law, but the law is designed to be retroactive, meaning if you purchase a qualifying home now, you can obtain the tax credits once the law is passed.

Closing Thoughts

There are plenty of excellent government programs designed to help new homeowners and would-be homebuyers. From FHA loans to the USDA’s loans and the Good Neighbor Next Door program, there are opportunities for most medium to low-income homeowners. The options in this article only outline federally funded programs, but there are even more state and municipal-level programs designed to help new homeowners, such as:

  • Down payment assistance programs (DPAs)
  • Closing cost assistance grants
  • Regional homeownership programs
  • Homebuyer education classes
  • Housing Counseling
  • Deferred Payment Loans
  • Homebuyer Education Courses

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