3 programs that could help first-time homebuyers

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3 programs that could help first-time homebuyers


According to a June 2016 survey of 1,000 millennials conducted by Credit Karma and Qualtrics, more than 88 percent of 18- to 34-year-olds who don't already own a home want to buy a home in the future.

But those surveyed also said that the high cost of housing is one of the major factors holding them back.

If that's the case for you, a local, state or federal homebuying program might help. Through these programs, you may be able to get money for a down payment or snag a real estate deal -- as long as you meet the requirements for the specific program.

What's required of the homebuyer?

Program eligibility guidelines and obligations vary but may include the following requirements:

  • Be a first-time homebuyer, as defined by the U.S. Department of Housing and Urban Development (HUD).
  • Complete a homebuyer-counseling program, which may include an eight-hour course and a face-to-face counseling session.
  • Obtain a mortgage loan from a program-approved lender.
  • Earn a low to moderate income and/or work in a certain profession.
  • Purchase a specific property listing or an eligible home that's located in a specific geographical area.
  • Live in the property as your primary residence for a specific length of time, usually at least 3-5 years.

Housing counselors may be able to provide independent advice about programs that might work best for your situation, though they may charge a fee for their services.

Sean Coffey, media and program evaluation manager of California Reinvestment Coalition in San Francisco, says to consider talking with housing counselors because they "often have the best knowledge about what local, state and bank down-payment assistance programs you can qualify for."

The Consumer Financial Protection Bureau (CFPB) can help you find HUD-approved counseling agencies near you. Be sure to ask about any fees for courses and counseling before you get started.

3 programs available for first-time homebuyers

1. HUD's Good Neighbor Next Door program

You may be able to buy a home for up to 50 percent off its list price through HUD's Good Neighbor Next Door (GNND) program, which is available nationwide. You don't have to be a first-time homebuyer but you can't own a home when you make an offer, or up to one year before.

To be eligible, you need to be employed as a law enforcement officer, teacher (pre-kindergarten through 12th grade), firefighter or emergency medical technician on a full-time basis.

This program applies to properties located in HUD revitalization areas throughout the United States. These neighborhoods generally have very low-income residents, low homeownership, or a high concentration of delinquent or foreclosed properties.

Mark Ferguson, real estate investor, HUD listing broker and creator of Invest Four More in Greeley, Colorado, says that a small percentage of HUD homes are part of the GNND program and that inventory is limited. To search for a GNND program property, go to HUDHomeStore.com.

You must use a real estate broker or agent registered with HUD to place an offer on a home in this program and arrange any financing for the purchase.

Since the purpose of the program is to bring good neighbors to the area, if you participate, you're required to live in the home for three years to avoid paying back part of the 50 percent discount.

"The discount is actually a silent second loan, meaning it goes away and never has any payments if the buyer lives there three years," Ferguson says.

So if you sell the home or move out early, you might have to pay back all or part of that discount.

2. Inclusionary Housing below-market-rate (BMR) ownership program

The Mayor's Office of Housing and Community Development (MOHCD) in San Francisco administers a below-market-rate (BMR) homeownership program that allows eligible participants to buy a property for less than its market price. Other cities, including Chapel Hill, North Carolina and Sunnyvale, California offer similar programs.

For example, if some units in the area are priced in the $500,000s, units available through the BMR program may be priced below $300,000.You'll need to complete a number of steps to take advantage of this program. Before applying, you may need to get a mortgage loan preapproval from an approved lender and complete other requirements such as one-on-one counseling.

In addition, you must apply for a specific unit and be chosen through the lottery system. Income-eligibility requirements vary based on the unit and family size. Generally, you'll need to earn no more than 120 percent of the area median income (AMI), which in San Francisco is $129,500 for a family of four.

Units available for purchase are listed on the MOHCD website. Because they're sold on a lottery basis, you may not be able to buy a home exactly when you want to.

In addition, when you resell a unit, you must sell at a restricted price to a qualified buyer according to program procedures.

3. First Home Club℠

Residents of New York, New Jersey, Puerto Rico and U.S. Virgin Islands who buy a property in the area where they live may be able to take advantage of the First Home Club℠ (FHC), a program sponsored by the Federal Home Loan Bank of New York (FHLBNY). The program matches funds of up to $7,500 to be applied to a down payment and/or closing costs on a home.

FHC offers a 4:1 match to first-time homebuyers who fulfill the program requirements, such as living in your home for five years. In other words, they offer $4 for every $1 saved in a dedicated account (grating up to $7,500 in matching funds).

To get started, you'll likely need to work with an approved community lender, open and fund a savings account designated for home savings, and save money for at least 10 months.

To claim your funds, you'll need to qualify for and take out a mortgage loan with an approved lender.

More ways to save

Your financial situation may make you a great fit for one of these programs or a similar one in your area. But there may be other ways you could save on homeownership.

For example, having a higher credit score could mean a lower interest rate, which may save you money. The CFPB has a tool (in beta) that helps you explore interest rates from actual lenders in your area that shows how your credit score can affect how much you pay in interest.

According to the tool, a credit score in the range of 740 to 759 could qualify you for a mortgage interest rate of about 3.5 percent in Colorado, instead of 4.375 percent with a score in the 620 to 639 range.

The difference in your monthly payment would vary depending on the loan size, term and other factors. In this example, on a 30-year fixed-rate mortgage of $300,000, you may be able to save more than $150 on your monthly payments with that higher credit score.

With Credit Karma, you can check and monitor your credit scores, get free credit monitoring of your Equifax and TransUnion reports, and learn how to improve your credit health and spot errors. Before you start shopping for a loan, consider checking your credit report for errors and disputing them if necessary.

Another way you might be able to save is by comparison shopping to find the best deal on costs such as mortgage insurance and closing costs, which may include loan origination fees.

One method of comparing costs is to look at loan estimates from multiple lenders, which you can get after applying for a loan.

When applying for a loan, consider the impact of credit inquiries on your credit score. These may lower your score although if you apply for multiple loans within a short period of time, this may be treated as a single inquiry.

Bottom line

There are many ways to save on a home purchase. Special programs for first-time homebuyers often have strict guidelines but may offer great deals. If you don't qualify for these options, you still may be able to save money by maintaining a high credit score and shopping around for the right mortgage.

About the Author: Julie Rains is a mortgage-free, debt-free personal finance writer. She began investing in her 20s soon after landing her first real job. She writes about personal finance, mortgages, investing, and related topics at various online media outlets, including her own blog Investing To Thrive. Julie is a graduate of The University of North Carolina at Chapel Hill, where she earned a Bachelor of Science in Business Administration with a concentration in Finance. In her free time, she enjoys cycling, running, hiking, and hanging out with her husband and two sons.

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