A Guide to First-Time Home Buyer Programs, Loans, and Grants

Buying a first home is a truly exciting yet daunting process at the same time. As a first-time home buyer, you might be feeling confused with your various loan options, overwhelmed about the down payment, and wondering how to secure a mortgage with more favorable terms. Fortunately, there's a myriad of loans, grants, and programs to assist first-time home buyers. Read on to learn more!

There are many programs to encourage first-time home buyers to take steps toward home ownership. Some programs assist with the down payment, while others help you secure a mortgage or lower the interest rate to make buying a first home realistic and achievable. Some programs and grants even offer assistance without the need to repay the funds. 

 

One of the roadblocks for some first-time buyers is saving up for the down payment, which should ideally be 20 percent of the asking price (although it may be lower). Some DPAs are loan programs with lower interest rates, while others are grants. DPAs are available on the federal, state, and city levels, so it’s crucial to explore your options to make the best choice for your needs.

New Jersey has several programs to encourage first-time home buyers. For example, the New Jersey Housing and Mortgage Finance Agency's (NJHMFA) First-Time Homebuyer Mortgage Program helps provide lower interest rates, and you need to use this program to qualify for other programs. The NJHMFA DPA offers up to $15,000 for a down payment and to offset closing costs. This is an interest-free, five-year forgivable second loan for eligible first-time buyers. The DPA is paired with a 30-year, fixed-rate conventional loan or government-insured loan.

 

DPA grants, on the other hand, give first-time home buyers money toward the down payment that never needs to be paid back. The National Homebuyers Fund is a non-profit that offers grant programs that first-time buyers may be eligible to pursue. Your real estate agent and mortgage company can help you explore the options you qualify for.

In addition, some government-backed loan programs help you obtain a mortgage without the requisite 20 percent down payment if you qualify. Federal agencies can assist first-time home buyers by backing loans, lowering interest rates, and funding the down payment. These programs have unique qualifications, and you must review the program's parameters before applying to ensure that you are eligible. With a trusted advisor, you can explore your options to find the best fit for your needs, goals, and budget. These federal programs include:

The Good Neighbor Next Door program offers first responders, law enforcement, and teachers the chance to purchase homes in foreclosure at a drastic discount. The buyer must agree to live in the house as the primary resident for at least three years. This program helps first-time homeowners and revitalizes communities in designated areas.

Two major loan programs, Fannie Mae and Freddie Mac, offer free online classes to help first-time home buyers learn more about home buying and the real estate process. These courses provide information about saving for a down payment, applying for a mortgage, making an offer, and owning a home. 

The buyer almost always pays closing costs, which can run upwards of $10,000 or more, depending on the location and cost of the home. Sometimes, you and your agent can negotiate the contract with the other party so that the seller pays a portion of these expenses. In New Jersey, the NJHMFA DPA can be used to cover closing costs as well as the down payment.

Some employers offer first-time home buyer programs for their valued employees. To investigate this benefit, you should first check with your human resources department for clarification on whether your employer provides this type of assistance.

 

If you’re a novice to the real estate game, you might have a couple of important questions in mind.

The definition of a first-time home buyer can vary depending on the program you're considering. For instance, the NJHMFA considers a first-time buyer in New Jersey to be someone who hasn't owned a home in the last three years. However, some programs and non-profits define a first-time homeowner as a person who has never purchased or held ownership of a home. It’s essential to understand these definitions when determining whether or not you qualify for a specific program.

Determining eligibility for a home loan involves a comprehensive assessment of various factors. Begin by reviewing your credit score, as it significantly influences your loan options and interest rates. Of course, a higher credit score enhances your chances of securing more favorable terms. Evaluate your financial stability and income, considering your debt-to-income ratio to ascertain how much home you can afford. Research different loan programs available for first-time homebuyers, such as FHA, VA, or conventional loans, each with distinct requirements and benefits. 

Additionally, consider your down payment capacity, as some loans require a lower down payment than others. Consulting with trusted mortgage professionals can provide valuable insight into suitable loan options based on your individual circumstances, guiding you toward making an informed decision about the loan or grant you may qualify for.

For first-time home buyers, assembling the right team of real estate experts and professionals can make the real estate journey a seamless one. Theresa Lee is a trusted agent with the extensive experience and knowledge that first-time buyers need. Reach out to her office today to get started toward your dreams.