First Time Home Buyer Loans: Everything You Need To Know


Are you a first time home buyer? If yes, there’s a good chance you’re going to have to use a first time home buyer loan program to finance the purchase of your first house, condo, or town home. Then, you’ll have to pay back all that borrowed money over a 10 to 30 year period.

Unless you’ve set aside quite a bit of money to buy it for cash.

Below, I have researched and organized a list of first time home buyer programs to help you get started on your journey to buying your first real estate property.

Let’s get into it!

First Time Home Buyer Programs

First Time Home Buyer programs make it easy to buy a home with little money down. They also have more relaxed lending requirements. The most well known first time home buyer program is provided by the Federal Housing Authority or FHA.

(It’s the first program I used for my first home purchase, and I think it’s the best one out there.)

Some Highlights of this loan include:

  • A minimum credit score above 580 as part of the basic qualifications. But honestly, in the real world, I’d shoot for at least a 620 score with no bad marks on your credit whatsoever.
  • You can buy with only 3.5% down. Compare that to the traditional 10 or 20% required for a conventional mortgage.
  • A higher income-to-debt ratio is sometimes allowed, beyond the conventional loan limit of 30-40%.
  • There are some strict lending requirements relating to the condition and type of property you can buy with an FHA Loan. You can review those requirements here: FHA Loan Requirements

FHA is not the only first time home buyer option out there. Below are some more programs for you to review.

Other Programs include:

Freddie Mac & Fannie Mae – Both are government sponsored entities that work with small and large lending institutions to loan out money for buying homes. They help facilitate loan programs based on conforming guidelines from the government. The programs typically require a low down payment too. They do not directly lend out money to the borrowers. To learn more about the differences, check out the following article: Freddie Mac vs. Fannie Mae

USDA loan – If you’re considering a property in a rural area, this type of loan just might work for you. It can be used for purchasing, building, or repairing your new home.

VA loan – The VA loans don’t always require a down payment and are available exclusively to most members of the military. Including all Veterans, National Guard Members,  and Reservists.

Good Neighbor Next Door – If you’re a teacher, police officer, firefighter or an emergency medical technician (EMT) you may qualify for this program from HUD. They’ll offer a substantial 50% discount if you buy a qualifying home in the community you serve.

Energy-efficient mortgage (EEM) – If your borrowing money to purchase or remodel a home (or multiplex) that is energy efficient you’ll get some perks with this mortgage program. The biggest perk being that loan limits may be exceeded if the extra cost relates to the property being energy efficient.

FHA Section 203(k) – If you’re buying a fixer-upper, this program can allow you to finance up to 35k of the repairs right into your first mortgage. Wow, that would really help out with a neighborhood revitalization if everyone did that.

Local Grants and Programs – Your realtor or mortgage broker may know of some local grants or programs that might be available in your city to help purchase a property.

Quick tip: I highly recommend you educate yourself on the basics of financing and loans. Research the rules and regulations very carefully for each one of these programs. Especially if you’re renting out rooms, or eventually you want to rent the entire property out. It might be against the rules, or there may be some restrictions.

A Disadvantage Of A First Time Home Buyer Finance Program

Many first time home buyer programs let you put less than 20 percent down as a down payment and this is what makes them look very favorable. However, there’s a downside!

Any home purchase with a down payment of less than 20 percent (for the first mortgage) will require something called Private Mortgage Insurance (PMI); Which means you’ll have a higher monthly payment because you’ll need to pay for this insurance.

Here’s more information on what exactly PMI is: What Is Private Mortgage Insurance?

Based on my experience owning several homes already, there might be a way to use a second mortgage to finance part of the down payment to eliminate PMI, but you’ll need to work with the lender or a mortgage broker on that strategy. An example of this could be using a 10% cash down payment, then a second loan for the other 10% equaling the 20% down payment. Having a competent mortgage broker becomes extremely beneficial for working out this strategy, and it can save hundreds of dollars every month!

Final Thoughts

The idea of saving up an entire 20 percent down payment for a conventional mortgage loan is a far stretch for many people. Especially in California where the home appreciate faster than you can save up the entire 20% down payment up to qualify! It’s much easier to lock in a payment with a first time home buyer program, then refinance into a better conventional loan once you have built up some equity.

Have a home buying experience you want to share? Comment below.

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