First-Time Home Buyer Credits for Home Loans
What is a First time Home Buyer Credit?
When you’re thinking about buying your first home, there’s a lot of information to process and way too many financial decisions to make. For a lot of buyers, coming up with money for a down payment or to fund closing costs can be a huge roadblock. These buyers may give up their home search because it just seems insurmountable.
There’s good news, though! There are plenty of home buyer assistance programs out there that offer first time home buyers like you grant money, soft secondary mortgages, or other types of credits to soften the blow of trying to save up a chunk that substantial.
In short, you can buy -- maybe even this season -- with the help of one of many first-time home buyer programs.
Types of First Time Home Buyer Assistance
Although it’s rare that anyone will seek you out to give you free money, knowing how to ask the right people the right questions can give you the keys to unlock the doors it’s tucked behind. It starts with understanding you’re looking for.
For example, if you ask someone about a “first time home buyer credit,” they’re probably going to assume you mean a specific tax credit. Unfortunately, that program was only available for people who bought from 2008-2010, so this is the kind of question that may dead-end.
Instead, ask about these common types of first time home buyer assistance. They’re by far your best bets for the help you need:
USDA mortgages: If you live in a qualifying rural area and want to stay there, the USDA has some programs that can get you into a home with nothing down. That’s a pretty good deal, no matter who you are! You don’t have to buy a farm, either. Single-family homes are also included under this umbrella.
VA mortgages: Not necessarily just for first-time buyers, the VA makes loans to all eligible members and former members of the military. They usually have a zero down option, plus their fees are much lower than those in the FHA program.
State-based assistance: Many states receive block grants or sell mortgage bonds to fund home buyer assistance with down payments. These programs are administered through some, but not all, commercial banks in your area. You may have to ask around to find them. The assistance you get can come in a few forms, but the soft secondary mortgage and grants with recapture clauses are the most common.
With a soft secondary mortgage, your lender makes two loans: one to fund your purchase and another that’s the exact amount of the assistance you received. The first mortgage is your primary mortgage -- your first -- and the second mortgage is in the secondary position. What makes a “soft” second different is that it’s not reported to anyone. As the years pass and you meet certain homeowner milestones, the second slowly pays itself off. The only consequence comes if you have to sell before that secondary mortgage is paid in full. What happens then is outlined in your paperwork, but you may be required to repay what remains, repay the full amount of the second, or simply pay the tax on the gift you initially received from the program.
Grants with recapture are much simpler than soft seconds. They’re free money, with some strings attached. As long as you don’t sell too soon or to the wrong people (primarily family), then you won’t have to think about it again after leaving the closing table.
Local grants: Some cities will offer home buyer assistance that’s much like what is generally available at the state level. Contact your city’s main office to find out if there is a program like this, and if so, who you’d talk to. This kind of assistance is often used strategically to improve areas that are needing to be fixed up, encourage people to move to areas of lower population density to relieve congestion in urban areas or just to help out young families with lower incomes find a place to call home.
If the first bank you approach has never heard of first time home buyer assistance programs, keep walking. There are plenty that do offer programs, whether internal or through an arrangement with those departments that administer government funds. Find out what’s available in your area before you start to plan for how to pay your down payment. You may be very surprised at the amount of help you can receive.