Best mortgage programs for first-time homebuyers in 2020

Best mortgage options for first-time homebuyers in 2020

First-time homebuyer programs are helpful to become an owner of a home by offering financial assistance. These programs and grants will allow you to own your first real estate property, but they come with certain requirements and income restrictions.

There are many differences between the available mortgage loan programs for first-time buyers. Let’s go ahead and start reviewing some first-time homebuyer programs to take you to the next step to purchase a home.

FHA loans

FHA loans are insured by the Federal Housing Administration, these loans are great for buyers who have low credit. FHA loan requirements include a lower credit score and it comes with smaller down payments.

FHA loan benefits for first-time homebuyers are low interest rates and a 3.5% minimum down payment requirement as well as flexible income guidelines. This program requires a credit score of 580 to qualify for the 3.5% or at least 10% down with a score of 500 to 579.

Compared to other programs, it’s considered to have the lowest credit score requirements. FHA loans also require mortgage insurance, and it comes with a fee that you are required to pay upfront as well as annual premiums. This program protects and reimburses the lender if any problems occur and the borrower fails to fulfill the obligation.

The Conventional 97 loan

The conventional 97 loan is a great option for a first-time home buyer who wants a low down payment as you only need 3% down to become a homeowner.

The requirements for conventional loans include a credit score of 620 to qualify and private mortgage insurance, just like FHA loans. The good news is that unlike FHA loans, it allows buyers to cancel the mortgage insurance once they build 20% equity.

If you have a poor credit score, FHA loans are a better option for you.

Fannie Mae HomeReady and Freddie Mac Home Possible Loans

Both of these programs are government-sponsored enterprises that have a set of guidelines for loans. The programs are best for borrows who have strong credit and want a minimal down payment.

Credit score of 620 or higher and a minimum of 3% down payment aren’t the only similarities these programs have to the Conventional 97. HomeReady and Home possible loans also require mortgage insurance to qualify, but it can be canceled once the loan-to-value ratio is 80% less.

Fannie Mae HomeReady and Freddie Mac Home Possible allow you to use roommate income to help you qualify.

USDA loans

USDA loans are guaranteed loans by the U.S. Department of Agriculture for eligible areas. It’s best for borrowers with low income who are looking to buy a home in a USDA-eligible rural area.

The USDA loans offer great benefits for first-time home buyers such as zero down payment, low interest rates, and affordable mortgage insurance. You typically need a minimum credit score of 640 or documentation showing your payment history to qualify.

VA loans

VA loans are only for qualified U.S. military members such as active duty, veterans, and eligible family members. These loans are offered by the U.S. Department of Veteran Affairs and it’s the best option for eligible first-time home buyers.

The benefits of choosing VA loans are zero down payment, lower interest rates and low closing costs, and they accept low credit scores. You also won’t need to pay for mortgage insurance, as the VA will help with payment issues.

Good Neighbor Next Door

If you’re a teacher, law enforcement officer, firefighter, or an emergency medical technician, then this program is a great option for you. The Good Neighbor Next Door is sponsored by the Department of Housing and Urban Development to financially help buyers by making it more affordable to purchase a home.

To qualify for the Good Neighbor Next Door program you will need to be a full-time pre-K through 12th grade teacher, a law enforcement officer, a firefighter, or an emergency medical technician.

You must purchase a home in a revitalization area determined by the HUD and you have to make an offer within 7 days through the HUD Homestore. Other requirements include living in the home for at least 3 years and signing an annual certification to verify your primary residence.

If qualified, you can be given a discount of 50% on homes listed in the revitalization areas.

FHA Section 203(k)

If you have your eye on a beautiful home that has been abandoned for years or is for sale but needs a lot of fixing and you don’t have a lot of cash for renovations, the FHA Section 203(k) has made it possible.

The 203(k) loans are guaranteed by the FHA and it brings peace of mind to lenders who are willing to take a risk. The government-insured loans allow it to become possible for borrowers to improve properties in nice locations or properties that have major potential after the rehabilitation.

You will need a credit score of 640 or higher to qualify and a 3.5% down payment is required. You might also receive extra money for cosmetic renovation such as wall painting and window repairs, and you can borrow money to make mortgage payments for up to 6 months.