8 Loan Programs for First Time Homebuyers

As a first time homebuyer, buying a home at the Lake of the Ozarks is a very exciting time. It can also be a very stressful time - especially when you're trying to figure out your financing options. For those who don't have the best credit or a lot of money saved back to put toward a down payment, buying a home can seem impossible. Fortunately, there are several programs available to first time buyers that provide them with great mortgage opportunities. This week, we'll look at 8 common lender programs that help first time homebuyers get into their first home:


1. FHA loan
Best for: Buyers with low credit and smaller down payments

Insured by the Federal Housing Administration, FHA loans typically come with smaller down payments and lower credit score requirements than most conventional loans. First-time homebuyers can buy a home with a minimum credit score of 580 and as little as 3.5 percent down or a credit score of 500 to 579 with at least 10 percent down.

Unfortunately, you’ll need to pay private mortgage insurance, or PMI, with FHA loans. Your overall borrowing costs can be higher since you’re paying an upfront PMI premium and annual PMI premiums. Unlike homeowners insurance, this coverage doesn’t protect you. Instead, it protects the lender in case you default on the loan.

2. FHA Section 203(k)
Best for: Homebuyers interested in purchasing a fixer-upper but who don’t have a lot of cash to make major home improvements

If you’re brave enough to take on a fixer-upper but don’t have the extra money to pay for renovations, an FHA Section 203(k) loan is worth a look. Backed by the FHA, the loan calculates the home’s value after improvements have been made. You can then borrow funds needed to pay for home improvement projects and roll the costs into one loan. Improvements must cost more than $5,000 and you’ll need to make a minimum 3.5 percent down payment.

3. Fannie Mae or Freddie Mac
Best for: Borrowers with strong credit but a minimal down payment

The government-sponsored enterprises, or GSEs, Fannie Mae and Freddie Mac set borrowing guidelines for loans they’re willing to buy from conventional lenders on the secondary mortgage market.

Both programs require a minimum 3 percent down payment. Homebuyers also need a minimum credit score of 620 (depending on the lender) and a relatively unblemished financial and credit history to qualify. Fannie Mae accepts a debt-to-income ratio as high as 50 percent in some cases. You’ll need to pay for PMI if you’re putting less than 20 percent down, but you can get it cancelled once your loan-to-value ratio drops below 80 percent.

4. Fannie Mae’s HomePath ReadyBuyer Program
Best for: First-time homebuyers who need help for closing costs and are willing to buy a foreclosed home

Fannie Mae’s HomePath ReadyBuyer program is geared toward first-time buyers interested in foreclosed homes that are owned by Fannie Mae. After taking a required online homebuying education course, eligible borrowers can receive up to 3 percent in closing cost assistance toward the purchase of a HomePath property. The trick is finding a HomePath property in your market, which might be a challenge since foreclosures typically account for a smaller chunk of listings.

5. USDA loan
Best for: Borrowers with lower or moderate incomes purchasing a home in a USDA-eligible rural area

The U.S. Department of Agriculture, or USDA, guarantees loans for some rural homes, and borrowers can get 100 percent financing. This doesn’t mean you have to buy a farm or shack up with livestock, but you do have to buy a home in a USDA-eligible area.

USDA loans have income limits based on where you live and are geared toward folks who earn lower to moderate incomes. You typically need a credit score of 640 or higher to qualify for a streamlined USDA loan. Otherwise, you’ll have to provide extra documentation on your payment history to get a stamp of approval.

6. VA loan
Best for: Active-duty military members, veterans and their spouses

Qualified U.S. military members (active duty, veterans and eligible family members) are eligible for loans backed by the U.S. Department of Veterans Affairs, or VA. VA loans are a great deal because they come with lower interest rates compared to most other loan types and don’t require a down payment. Borrowers, however, will need to pay a funding fee that is required on VA loans, but it can be rolled into your loan costs. Some service members may be exempt from paying it altogether.

Other VA loan perks include no minimum credit score or private mortgage insurance (PMI) requirements. The VA can negotiate with the lender on your behalf if you find yourself struggling to keep up with mortgage payments.

7. Good Neighbor Next Door
Best for: Teachers, law enforcement, firefighters and emergency medical technicians

The Good Neighbor Next Door program, sponsored by the U.S. Department of Housing and Urban Development (HUD), provides housing aid for law enforcement officers, firefighters, emergency medical technicians and pre-kindergarten through 12th-grade teachers.

Qualified participants can receive a discount of 50 percent on a home’s listed price in “revitalization areas.” You can search for properties available in your state using the program’s website. You must commit to living in the home for at least 36 months.

8. Energy-Efficient Mortgage (EEM)
Best for: Homebuyers who want to make their home more energy-efficient but lack upfront cash for upgrades

Making “green” upgrades can be costly, but you can get an energy-efficient mortgage (EEM) loan that’s insured through the FHA or VA programs. An EEM loan lets you tack the cost of energy-efficient upgrades (think new insulation, a more efficient HVAC system or double-pane windows) onto your primary loan upfront — all without a larger down payment.

So if you're considering buying your first home at the Lake of the Ozarks and have questions about mortgage options, you now have some options to check into! Make sure you're equipped with a top-notch real estate team to make sure every step of your transaction is handled professionally and thoroughly. Our team of consultants provides you with the communication and service you deserve throughout your entire experience. By having a team, we make buying a home at the Lake of the Ozarks easy. Rest assured, you're in good hands with the best real estate team at the Lake of the Ozarks - the Fran Campbell Team!

Contact the Fran Campbell Team to get your home SOLD!

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