Types Of First-Time Home Buyer Programs
First-time home buyer costs can seem overwhelming. Luckily, there are several loan programs and grants that can assist with your down payment and closing costs, including charitable and government-sponsored programs. Local and federal tax credits can lessen these costs, and educational programs can offer help at every step.
Let’s take a look at some of the most popular first-time home buyer loans and grants.
Government-Backed Home Loans
A government loan, or a mortgage loan backed by the federal government, can also help qualified first-time home buyers purchase a house with no down payment. We’ll cover these types of loans in more detail later on in the article.
Down Payment Assistance (DPA)
A down payment is a large initial expense that’s a percentage of the home’s purchase price. A down payment is required for most types of mortgage loans. Fortunately, many participating lenders accept down payment assistance (DPA), which can help you cover the upfront costs of a down payment.
Down payment assistance programs are typically grants or low to no-interest loans, and many are exclusive to first-time home buyers. The specific assistance programs you qualify for can impact how you can use your funds and whether you’ll need to pay them back.
Down Payment Assistance Loans
Not sure you can cover a down payment on your own? You may also be eligible for down payment assistance programs through a few specific types of loans to reduce the amount you have to put down when buying a house.
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 don’t require monthly payments, and instead 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. However, the loan will need to be repaid when you move, sell, refinance or pay off your primary mortgage if you move before that set number of years expires. Otherwise, you’ll violate the terms of the loan forgiveness.
Down Payment Assistance Grants
You may be able to get DPA through grants, which don’t have to be repaid. Program eligibility 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.
Tax Deductions
You can save money on your taxes through various tax deductions. Federal and state deductions can lower your taxable household income.
For example, you can deduct the cost of mortgage interest paid on a primary residence and one second home from your federal taxes on the first $750,000 of your mortgage loan ($375,000 if married filing separately). This deduction has currently been extended through the 2023 tax year.
Additional deductions and credits, like mortgage credit certificates (MCCs), may also be available through your state or local government.
Closing Cost 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 around 3% – 6% of the total loan amount. 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 through 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 mortgage points upfront to lower your interest rate and contribute to property taxes.
Home Buyer Education Programs
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 home buying 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 home buyers. It is worth nothing that some educational programs may require specific courses.
Not sure where to start? Check out these tips for first-time home buyers.
