The main reason cited by non-homeowners for not owning a home is that they cannot afford to buy one, as revealed in the 2018 NAR Aspiring Home Buyers Profile. The results are highest at 56 percent in the last quarter of 2017. Also, many home buyers have already indicated that the most difficult step in the home buying process is saving for a down payment.
Likewise, many of these potential homeowners believe that you need a daunting 20 percent down payment to be able to buy your first home, so they already deem themselves ineligible without even trying. But the silver lining is that 61 percent of first-time buyers who purchased a home through a mortgage from December 2016 to November 2017 actually made a zero to 6 percent down payment, as reported in the NAR November 2017 Realtors Confidence Index. And yet, coming up with a 6 percent down payment can still prove challenging for many — especially for low- to medium-income earners, new graduates who are still paying student loans, single parents, or those who are still recovering from credit card debt. To help you kick-start your home-buying process, here's a list of grants and loan assistance programs you could check out to help you afford a mortgage to get your dream home.
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), an agency within the U.S. Department of Housing and Urban Development (HUD). Their most popular home loan is the 203(b) FHA Fixed Rate Mortgage Loan Program, especially for first-time home buyers. It keeps a buyer's down payment to a minimum and could also reduce the closing costs.
FHA loans could greatly benefit those who want a home but have little or no money saved for a down payment, including students who just graduated from college, newly married couples, and those who have had credit problems in the past because of foreclosure or bankruptcy.
Pros: Those who have a credit score of 580 or higher can get a mortgage with a down payment of as low as 3.5 percent. For those with credit scores lower than 580, they can still qualify for an FHA mortgage, but the down payment will be at least 10 percent of the home's purchase amount. Borrowers can use many sources of cash to make a down payment, including from their own savings, a gift from a family member, or a grant from a down payment assistance program. In an FHA loan, home sellers, builders, and lenders could offer to pay some of the borrower's closing costs, such as an appraisal, credit report, or title expenses, as an incentive.
Cons: FHA loans require a borrower to pay mortgage insurance, unlike conventional loans. This backing protects private lenders from delinquent borrowers. Because the FHA is only an insurer, borrowers need to get their loan through an FHA-approved lender.
The home buyer assistance programs offered by the U.S. Department of Agriculture (USDA) help borrowers or families with low and moderate incomes obtain decent and safe housing in rural areas.
Pros: If you qualify for a USDA loan, you will receive 100 percent financing with no down payment necessary. These loans aren't confined to farmland, so there’s no need for a borrower to run or buy a farm to be eligible.
Cons: The program has income limitations, which vary per region according to the median income of the area.
Veterans, active-duty service personnel, and select Reservists or National Guard members, as well as spouses of military members who died while on active duty, are among those who can qualify for VA loans offered by the U.S. Department of Veterans Affairs.
Pros: VA loans come with competitive interest rates and require no down payment, which is a huge plus. Borrowers are not required to purchase private mortgage insurance.
Cons: Only VA-approved appraisers can inspect the home chosen by the service member to make sure they meet minimum property requirements. Although VA does not require a minimum credit score for a home loan, lenders generally have their own additional requirements.
The Good Neighbor Next Door Program is sponsored by the Department of Housing and Urban Development (HUD) and provides housing aid for people who belong to certain professions.
Pros: A buyer can receive a 50 percent discount on the list price of an eligible property that is located in revitalization areas by committing to live in the property for at least 36 months.
Cons: There are certain housing conditions for each profession. A buyer must weigh the location versus his/her savings when buying a home through the GNND program. For those who are having difficulty saving for a down payment, this program provides down payment and/or closing cost assistance in the form of a non-repayable grant of up to 5 percent of the loan amount.
Fannie Mae and Freddie Mac are both government-sponsored entities that work with local lenders to offer mortgage options that benefit low- and moderate-income families.
Many states and cities offer a variety of down payment assistance programs to help first-time home buyers afford a mortgage. Most of these programs are location-specific and income-dependent, but many are designed for low-income buyers who need additional assistance.