The Mortgage Directory

More People Than You Think Qualify for ‘First Time Buyer Loan Programs’

First time home buyer loan programs can offer smaller down payments and lower interest rates for those that qualify. There are many first time buyer assistance programs available and they generally vary on a geographic basis. These programs are usually state or community sponsored. What is meant by the term "first time buyer" can differ between programs but many use the definition provided by the U.S. Department of Housing and Urban Development (HUD). That definition describes a person who has not owned a home before but in some cases they will still fit this definition as long as they have not owned a home in the previous three years or so.

It is important to note that in many situations a person who has been in title to a home in the past can qualify for first time buyer assistance. These programs usually have a limit on the maximum price of the home which can be purchased and most of the time it is based on the limits imposed by governmant backed loans such as FHA an VA. Many programs also contain a limit on yearly income as determined by someone’s tax records. This limit will usually vary depending on the number of people in the household.

First time buyer programs usually come in two varieties. The first is some form of down payment assistance and the second is interest rate subsidy in some form. The buyer is typically encouraged to hold the property for a prescribed number of years, often around around seven. Usually there is a prepayment penalty for selling the home before that specific amount of time has passed.

There are many different programs available but for the most part buyers must earn no more than on average 75% of the area's median income in which they are shopping for a home. Since the qualification process is based on a percentage of income for that area, some buyers can earn $100,000 or more depending on their area's median incomes. Due to the recent US housing boom, first time buyer assistance is available to many more people simply due to real estate prices rising disproportionately compared to incomes.

Most programs offering lower than market interest rates are the product of local or state funds. The local government creates and uses pools of money to generate mortgage opportunites to low or moderate income families at about 1%-2% below market rates. In the down payment assistance arena, local government agencies provide most of the funds. Usually the buyer acquires a second loan at below market rates and/or with a due date some time in the future. Buyers can also receive down payment gifts from outside sources such as friends, families, and even private down payment assistance organizations.

Since these programs are generally local in nature, it is best to find a mortgage broker or lender who is familiar with these sources in the area where the target neighborhood is located. It is wise to call 3-4 of these lenders to find one who can help with the best assistance program. Also, realtors who work mainly with first time home buyers will know whom to contact in that particular area.

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