First time home buyers are often eligible for a first time home buyers loan, which most loan programs offer. The benefits of this loan type may include a lower down payment, reduced closing costs due to grants and forgivable loans, tax credit and more financial freedom. Learning more about the benefits of the loan program and the benefits it can offer can help you decide if pursuing one is right for you.
What is a First Time Home Buyers Loan?
A first time home buyers loan is a home loan offered to borrowers who are considered a first time buyer. This includes any adult who has never purchased a home, and many loan programs also define a “first time buyer” as anyone who has not purchased a home in the last three years.
To qualify for the loan program, the applicant must be a first time home buyer as well as meet all other requirements. The qualifications typically include the ability to make a minimum down payment, a minimum credit score and an ideal debt to income ratio. Some loan programs have additional requirements, such as having veteran status if you are applying for a VA loan or seeking to purchase a home in an approved USDA area for a USDA loan.
The Benefits for First Time Home Buyers
A first time home buyers loan is designed to give first time buyers a financial head start to reduce the risk of home foreclosure or financial challenges brought on by increased closing costs or down payments. Understanding the benefits can help you determine if pursuing this kind of loan is appropriate.
The benefits of the loan program depend on various factors and are unique to each borrower. In addition, every loan program offers its own advantages. However, there are some more common benefits first time home buyers often receive, which includes a low or no down payment loan, reduced closing costs and tax credit.
Low or No Down Payment Loans
The most common type of a first time home buyers loan is one that offers a low or no down payment. This is a huge advantage for many buyers, especially those who may not have a lot in their savings account. The amount that is required for the down payment with the loan program depends on the applicant’s ability to meet other criteria. An applicant with a high credit score and low debt to income ratio is more likely to receive a low or no down payment loan.
In addition to the loan program, every state offers first time home buyers grants. Depending on the state, buyers may be eligible for a grant or forgivable loan to assist with the down payment cost if one is necessary for the home purchase.
Many first time home buyer loans and grants cover the closing costs, which is often three percent or more of the home loan. This can make homes more affordable for prospective first time buyers who may not have a large sum of money saved in their bank account.
The ways in which the loan covers closing costs vary for each program. For example, FHA offers a 203(k) loan that may help with necessary renovation costs by adding the amount into the loan. Perhaps more commonly, first time buyers are able to find closing cost relief through grants and forgivable loans for first time buyers.
One of the most powerful incentives for many first time home buyers is federal and state tax credit. In some instances, the amount of interest paid on the loan is deductible with the federal government under certain loan programs such as FHA. While this may be a more complicated benefit to receive, looking into the possibility of tax credit with the loan program is certainly a good idea.
A first-time home buyer working with a mortgage broker is a good idea. They will tell you that loan offers financial freedom initially and long-term. Initially, the closing costs and down payment are often more affordable for the home buyers, and being able to create equity on your home through a mortgage payment (rather than rent payments) can offer long-term financial freedom, especially after you pay off the entire mortgage and own the home outright.
Contact The First Time Home Buyers Experts
Here at My Lending Pal, we help buyers secure the best mortgage loan possible to provide them with financial freedom as they start a new and exciting chapter of their life. Reach out to us by phone or email today if you would like to learn more about the benefits and how we can help you secure a home loan.