We have so much information at our fingertips thanks to technology, but there are still many misconceptions about residential mortgage financing for the first-time homebuyer. Most prevalent is that consumers need a significant amount of cash available to make their first home purchase. There is also a lot of misinformation about credit, debt and qualifying.
Let’s begin with the definition of a first-time homebuyer (FTHB). As counter-intuitive as it may seem, the FTHB as defined by most of the residential mortgage agencies is, “an individual who has not held an ownership interest in a residential property within the last three years.” Sometimes there are amendments to the three-year ownership rule such as divorce or loss of a wage-earner. Even in some cases where a married couple has one existing homeowner and one spouse is a FTHB, there are certain first-time homebuyer programs that may still apply.
Today’s FTHB has many products available to them and each has unique restrictions and guidelines. These can involve limitations concerning income, assets, and geography as well as property restrictions and/or minimum credit scores (sometimes even all of the above). Many times, FTHB programs require borrowers to complete a “certification,” which is an educational component that typically involves taking a course that covers things like budgeting, mortgage financing terminology, and predatory lending.
If you qualify as a first-time homebuyer, here are some programs that you may be able to consider:
Fannie Mae (FNMA) and Freddie Mac (FHLMC) both allow for up to 97% financing.
Federal Housing Administration (FHA), requires a minimum 3.5% down payment and is not reserved to only FTHBs.
Pennsylvania Housing Finance Agency (PHFA) allows for up to 97% financing and offers a specific product that has no mortgage insurance requirement, even with a 3% equity position, but the interest rate is priced accordingly.
United States Department of Agriculture (USDA) allows for rural financing up to 100% as long as the buyer and property meet set restrictions, but the mortgage insurance aspect (called a Guaranty Fee) is expensive as compared to some other FTHB programs.
Veteran’s Administration (VA) is available exclusively to Veterans and can be used subsequent times beyond a first home purchase, but the accompanying Funding Fee (VA’s form of mortgage insurance coverage) increases with each new loan.
Federal Home Loan Bank First Front Door grant can provide up to $5,000 towards a buyer’s closing costs and/or down payment and can be used in conjunction with some of the FTHB programs.
There are many viable options for most FTHB in today’s competitive market, but there are also many factors such as income, the number of household occupants and credit score to consider when determining which program is best for your unique situation. Given each program’s nuances, the variations in interest rates, terms and product guidelines, it is advisable to consult a mortgage expert, like those at Univest Home Loans, to determine which program works best for your needs. Ready to start the home buying process? Contact us at 877-723-5571 to learn more.
Univest Bank and Trust Co. is an Equal Housing Lender.