For many looking for their dream home, the home buying process can be complicated and expensive. With high home prices and interest rates, buying a first home seems out of reach for many. Fortunately, there are programs in every state and many localities designed to help first-time buyers overcome some of the financial barriers that prevent them from owning a home.
Follow along to learn more about state and local first-time homebuyer programs, where to find them, and how you can qualify.
What are first-time home buyer programs?
State and local first-time home buyer programs are specifically designed to increase the accessibility and affordability of homeownership for first-time home buyers.
These innovative programs can offer down payment and closing cost assistance, reduced interest rates, and more to help first-time buyers save money on one of the most important financial transactions of their lives. They also provide additional assistance through valuable educational resources.
Who provides first time home buyer programs?
The most common sources for first-time homebuyer programs at the state level are (HFAs). These state-chartered authorities operate in every state of the union to provide residents with affordable housing opportunities. HFA programs typically target low- and middle-income residents as well as special groups such as first-time home buyers, veterans, those with disabilities, and people experiencing homelessness. residence.
While HFAs typically set the eligibility criteria for their first-time home buyer programs, they do not provide home loans. Instead, they give borrowers the help they need to work with approved private lenders who administer the loans.
HFAs are not the only source for first-time homebuyer programs at the state and local level. County and municipal government agencies can also help directly through their own programs.
For more information on local agencies in each state, which cover local homebuyer programs.
Types of first-time home buyer benefits
The benefits of first-time home buyer programs come in a variety of forms, from needed cash to information you can use for housing decisions for years to come. Below are some of the most common benefits of first time home buyer programs.
Down payment and closing cost assistance
The most direct benefits come in the form of cold, hard cash. Many programs offer first-time home buyer grants to cover the costs of buying a home, such as a down payment and . Programs may also provide a second mortgage loan with little or no interest to cover these initial costs.
Decrease in interest rate
For long-term help, some first-time home buyer programs offer low-interest-rate loans that you won’t find anywhere else. For example, first-time home buyers in targeted areas can reduce their interest rate by up to 0.25%.
Mortgage tax credit certificates
Mortgage Tax Credit Certificates (MCCs) allow first-time home buyers to reduce their federal taxes based on the cost of their mortgage interest. While percentages vary between states, MCCs provide a tax credit typically worth 20%-40% of the amount first-timers spend on mortgage interest (up to $2,000 annually) .
For example, let’s say your state HFA offers a 40% MCC. If you pay $4,000 in interest on your loan in a year, MCC will give you a $1,600 federal tax credit. That’s a “dollar for dollar” reduction in your annual tax bill.
While this is a federal tax credit, state HFAs administer programs that provide these benefits.
First-time home buyer benefits aren’t always about money. State and local programs can also provide valuable insight into the intricacies of the home buying process. First-time home buyers are often required to complete an educational course to receive benefits.
First time home buyer qualification requirements
It is important to note that while each first-time home buyer program has specific eligibility requirements, there are some general requirements for first-time home buyer programs:
Definition of a first-time home buyer: Many first-time home buyer programs define a “first-time home buyer” as someone who has never owned a home before or has not owned a home within the past three years.
Residence: Most first-time home buyer programs are designed for primary residences. You will likely need to live in the home after purchasing it and not use it for other purposes, such as a vacation or rental property.
Income: First-time homebuyer programs are usually designed for low- to moderate-income buyers, so your household must meet income limits to qualify. The limit usually depends on the local median income and the size of your household.
Selling price: The program can set a maximum sales price for the home you want to buy based on the median sales price in the area.
Education courses: As mentioned above, HFAs may require you to complete an educational course to qualify for a first-time home buyer program. These helpful lessons will teach you the ins and outs of the home buying process, the importance of saving and more.
Credit score: You usually need at least 620. This is in line with the minimum score that conventional lenders are looking for.
The debt to income ratio (DTI): First-time homebuyer programs typically require a DTI of 43% or less, but DTI requirements can vary between state and local programs. You can calculate your DTI by dividing your total monthly debt by your gross monthly income.