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For many first-time homebuyers, coming up with a down payment is difficult. Maybe you’re saving up to start a family or you’ve got student loans eating into your income.
If you don’t have that down payment yet, you’re not alone. According to the December 2016 Realtors Confidence Index Survey Report, 81% of first-time homebuyers buy with less than 20% down.
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If you’re ready to buy a home now and found a competitive mortgage rate, first-time homebuyer grants and programs are available to help complete the process. Here are six programs that can help you get into a home without a huge down payment.
1. HUD’s Good Neighbor Next Door
Though it’s not strictly limited to first-time homebuyers, the Good Neighbor Next Door program from the Department of Housing and Urban Development (HUD) can help you save big on a home. HUD lists eligible properties by state.
To be eligible, you must purchase property in an area marked out for revitalization. The idea is to encourage renewal in specific areas. However, this program is only open to certain professions, including:
- Law enforcement officers
- Emergency medical technicians
If you commit to living in the property for at least 36 months, you can receive up to 50% off the list price of the home. These properties are often areas of urban blight, rural abandonment, or places that others are reluctant to live in. Weigh location against savings before you make your choice.
2. National Homebuyers Fund
The NHF offers one of the few multi-state first-time homebuyer grants. After you find a participating lender, the down payment assistance program provides up to 5% of the loan amount. This is a non-repayable grant, which means you don’t have to pay it back.
This program has income criteria related to FHA, VA, and USDA loans. Check with a participating lender for more information about income requirements and limits — based on your location and housing market.
It’s important to note, however, that Mortgage News Daily reported in February 2017 on a disagreement between the NHF and the Federal Housing Administration (FHA). Some lenders might no longer offer access to this program.
3. Veterans Administration loans
If you’re a veteran or currently active duty, you might qualify for a VA loan. The advantage here is that you won’t need to make a down payment at all.
While not strictly a first-time homebuyers program (and not truly a grant), the reality is it can be very useful to not have to make a down payment. Plus, you can usually get a competitive mortgage rate.
VA loans are backed by the government and offered through participating lenders. As long as you meet the service requirements, you can qualify for one of these loans.
On top of that, the VA also offers Adapted Housing Grants. These will help you purchase a home adapted for your service-related disability. So, if you have a disability related to your service, it’s possible for you to receive a grant that goes toward purchasing an adapted home. Additionally, the grant also applies if you need to make upgrades to a home in order to make it accessible.
4. USDA loans
If you don’t mind living in an area considered rural, you can get a home loan using the Department of Agriculture program. USDA loans help those with low and moderate incomes buy homes in rural areas.
You don’t need a down payment to participate, although you need to meet certain income requirements.
The biggest downside to using a USDA loan to help you buy a home is that you’re required to live in a rural area. Carefully consider what’s important to you in a home and a location. If you want something walkable, this program probably isn’t for you.
5. First Home Club from Quontic Bank
The First Home Club offers the chance for borrowers to receive matching funds toward a down payment. “The First Home Club offers the chance for borrowers to receive matching funds toward a down payment in the state of New York,” said Drew Sandholm with Quontic Bank in New York.
With the First Home Club, you make monthly deposits into a Quontic savings account. For each dollar you save, you get four dollars in matching funds up to $7,500 designed to go toward your new home.
If you have a plan of attack to save up, this can be a great way to super-charge your efforts. However, the downside is that you can only have your mortgage funded through Quontic if you want to take advantage of the grant match program.
6. Local first-time homebuyer grants
“Most first-time homebuyer grants are income dependent and location specific,” said Hillary Legrain, Esq., Vice President of First Savings Mortgage Corporation.
There are very few first-time homebuyer program options at the national level. Instead, many of these programs are administered on the state and local level. “Most counties in each state have their own first-time homebuyer programs and set the requirements for each,” Legrain said.
It’s important to pay attention to these programs because some of them actually require you to repay them if you only live in the home for a short period of time. “The grants are usually forgivable over a period of time,” Legrain explained. “For example, 20% of the grant might be forgiven each year for five years.”
Another consideration is tax recapture. “Some programs levy a recapture tax if you sell your home for a profit before a certain number of years have passed,” Legrain said. This means that some gains you get from a home’s increased value when you sell might get taxed in order to make up for the break you received earlier.
The federal government also provides block grants to Congressional districts through HUD. You need to go through local programs to access these funds.
Get help with a first-time homebuyers program
Rather than starting at the national level, it makes more sense to start with your local lender.
A good mortgage broker should have information about different first-time homebuyer grants in your area. They can also help you determine your eligibility and set you on the right track for finding a program that can get you in your home much sooner.