A Guide to Financing Options for First-Time Home Buyers
We asked Darrin Q. English, Senior Community Development Credit Officer at Quontic Bank in New York, for financial advice for first-time buyers. English responded to our questions in an email. Answers have been edited for length and clarity.
Q: Do you have any general advice for first-time buyers on financing?
A: Preparing for your first home purchase can be daunting. It is important to educate yourself about the home buying process. Understanding basic financial language will be essential when doing a survey with a lender. Familiarize yourself with risk factors such as your credit score and debt that will influence your rate and the terms of your loan. Also:
● Start your search online.
● Attend an online shopping seminar.
● Contact a bank that you know first.
● Find a local non-profit agency sponsored by the Ministry of Housing and Urban Development. A HUD Certified Home Buyers Advisor will know your local programs and guidelines.
● Ask your family and friends to recommend lenders to consult.
Q: How much money do buyers typically need for the down payment and closing costs?
A: Typically, a borrower needs a minimum of 3 percent for the down payment. Closing costs vary by state and range from 3 to 5 percent of the purchase price. Many loan programs also require borrowers to have at least two months of principal, interest, taxes, and insurance (PITI) in reserves.
These funds can be obtained from a combination of savings, retirement funds and gifts from family members. It is important to note that many loan programs require that the 3% down payment come from the borrower’s own savings.
Q: What are the right loan options for first-time buyers?
A: FHA loans of Federal Housing Administration are the federal government’s premier first-time home buying program. FHA loans require a 3.5 percent down payment and allow borrowers to qualify with a lower credit score and higher debt-to-income ratio, which compares your minimum monthly debt payments to your gross monthly income. Borrowers can get donations from family members.
Additionally, sellers can contribute up to 6% of the purchase price towards a borrower’s closing costs. However, mortgage insurance is required for the life of the loan.
VA loans, which are designed for people who have served our country in the armed forces, are a good option for those who are eligible, as buyers can finance 100% of the purchase price without the need for mortgage insurance.
In addition to the standard first-time loan programs, many lenders have their own special programs designed for first-time buyers. Some are limited to first-time buyers and some are open to all borrowers, but are particularly useful for first-time buyers.
● Bank of America: Bank of America’s Community engagement in homeownership, available in many U.S. markets, includes down payment and closing grants, low down payment loans, and educational resources to help buyers prepare for homeownership.
Bank of America Real Estate Center home shopping tool helps buyers identify homes where subsidy programs may be eligible. Borrowers must qualify based on income and housing price limits.
The program allows eligible borrowers to purchase a home with a down payment as low as 3 percent of the property’s purchase price, which can come entirely from donation funds. Eligible borrowers can request up to $ 5,500 for closing costs or down payment.
To be eligible, borrowers must have a minimum credit score of 620 and a maximum debt-to-income ratio of 45%, which compares the minimum payment of all recurring debt to your gross income.
The borrower’s income cannot exceed the area median income (AMI) of the county in which the property is located.
Loans can be combined with community programs that provide down payment assistance. Citizen home loans require income and credit qualification and are available in 12 states, primarily New England and the Mid Atlantic.
● Adopt home loans: The Affordable Housing Program offers reduced closing costs and lower interest rates for eligible borrowers. The program works with the FHA, Department of Agriculture, Department of Veterans Affairs, Home Possible and HomeReady loans, and allows down payments as low as 3 percent, from sources such as eligible donations, grants, and grants. down payment assistance programs.
To qualify, borrowers must be first-time buyers, have a credit score of 620 or higher, and have an income of 80% or less of the MAI for the location of the property.
● Federal Navy Credit Union: The Homebuyers Choice Loan is a no down payment loan with a fixed interest rate and no PMI requirement. Borrowers don’t have to be first-time buyers. The loan terms are the same as for other conventional loans, with a review of income, assets and credit.
● Quontic Bank: The SONYMA (State of New York Mortgage Agency) loan program includes Make the dream come true, a 30-year fixed rate loan with a 3 percent down payment requirement that can be combined with grants and down payment grants. In addition, a low interest rate program is available on loans with a 3% down payment.
Borrowers must be first-time buyers in New York State who will be living in the residence. Income and purchase price limits also apply.
● TD Bank: The TD Right Step Mortgage offers qualified buyers a 30-year low fixed rate alternative to conventional or FHA guaranteed loans and offers flexible down payment options as low as 3% without the additional cost of PMI.
To qualify, borrowers must complete a home buyers class and meet the bank’s credit standards. TD Bank also offers extensive training and resources for home buyers, including interactive seminars that explain the mortgage process.
Low to moderate income borrowers must have verified qualifying income, which is 80 percent or less of the MAI.