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Understand All Your Financing Options as a First-Time Homebuyer

April 08, 2019
Home with For Sale Sign Outside, First-Time Homebuyer Financing Options

So you're getting ready to buy your first house? That's exciting! And... scary.

Chances are this will be your biggest expense to date and how you decide to finance it could make a huge impact on your disposable income and lifestyle for at least the next 15-30 years. 

The good news is that there are a wide variety of financing options, especially for first-time homebuyers. The bad news is that learning about these options can be extremely overwhelming.

Remember, there are a number of professionals who are available to provide advice. If you're working with a realtor, he or she can likely steer you in the right direction for information. Your local banker is also a great source for information and guidance, as is your financial planner (if you have one). Depending on where you plan on living, you can also contact your local HUD-approved housing counseling agency to learn about financing programs and incentives that are specific to that area. 

Now, let's take a quick look at some first-time home buyer programs and grants available. 

1. FHA Loans
Insured by the Federal Housing Administration, FHA loans are attractive because of their small down payment and lower credit score requirements. In fact, as a first-time homebuyer you could buy a home with a credit score as low as 580 and as little as a 3.5% down payment (depending on other qualifications), which are key reasons why FHA loans are the most used type of mortgage by first-time homebuyers. A disadvantage is that you have to pay an upfront premium and annual premium for mortgage insurance. This protects the lender in case you default on the loan. 

 2. VA Loans
Active US military personnel, as well as veterans, are eligible for loans backed by the US Department of Veterans Affairs (VA). If you qualify, this is definitely an attractive option, as it comes with lower interest rates than what are found with most other loan types and requires no down payment. Another benefit is that there is no minimum credit score to qualify and no need for mortgage insurance. In some cases, there may be a funding fee involved. 

3. Fannie Mae and Freddie Mac Loans
These government sponsored enterprises buy loans meeting specific requirements from conventional lenders on the secondary mortgage market. Both Fannie Mae and Freddie Mac programs require a minimum down payment of 3% and a minimum credit score of 620. In addition, they require mortgage insurance to be purchased until you pay down the loan to meet what's called a minimum loan-to-value ratio. 

4. Fannie Mae's HomePath ReadyBuyer Program
First-time homebuyers interested in foreclosed homes owned by Fannie Mae may qualify under this program which, among other things, allows eligible borrowers to receive up to 3% in closing cost assistance toward the purchase of a HomePath property.

5. USDA Loans
The US Department of Agriculture (USDA) provides 100 percent financing for homes that are in USDA-eligible areas. These are typically rural homes being purchased by people earning lower-to-moderate incomes. Beyond the geographic guidelines, homebuyers must have a credit score of 640 or higher. 

6. Good Neighbor Next Door Loans
Sponsored by the US Department of Housing and Urban Development (HUD), the Good Neighbor Next Door program provides housing aid for law enforcement officers, firefighters, emergency medical technicians and pre-kindergarten through 12th grade teachers. Through this program, qualified applicants can receive 50% discount on a home's listed price in regions classified as revitalization areas, assuming a commitment to live in the home for at least 36 months. 

7. Home Upgrade Program Loans
If you're planning on making major upgrades to your home, you may qualify for one of two government sponsored programs. 

An energy efficient mortgage (EEM) allows you to tack on the cost of energy-efficient upgrades onto your loan upfront without requiring a larger down payment. 

A HUD 203(k) loan allows buyers to borrow additional funds for major fixer upper projects by considering the value of the property after the improvements are made. 

8. Local first-time home buyer programs and grants
Some states and cities offer special grants and programs designed to attract first-time buyers to a particular area. Homes in these area may be eligible for grants that don't have to be repaid or low-interest loans with deferred repayment to cover down payment or closing costs. 

Related blog: 5 Questions to Ask Before Buying a Home

Meet our mortgage lenders. 

Watch for upcoming blogs devoted to tips and considerations for first-time homebuyers.

The information and recommendations contained herein is compiled from sources deemed reliable but is not represented to be accurate or complete. In providing this information, neither Cortland Bank or its affiliates are acting as your agent or is offering you any tax, accounting or legal advice.

By selecting any external link on www.cortlandbank.com, you will leave the Cortland Bank website and be directed to an unaffiliated third-party website that may offer a different privacy policy or level of security. The third-party is responsible for website content and system availability. Cortland Bank does not offer, endorse, recommend, or guarantee any product or service available on that entity's website.  
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