It can be very exciting when buying your first home. However, being a first-time home buyer comes with many responsibilities. You will have various financial obligations, such as the mortgage loan, down payment, closing costs, taxes, and more. Fortunately, there are different programs, loans, and grants available for first-time buyers that you can tap into to make this process easier. This comprehensive guide for individuals buying their first home provides an in-depth look at different programs available to help relieve the financial burden of purchasing a home.
Types of first-time home buyer programs
As a first-time home buyer in Minnesota, there are several helpful resources you have access to. The North Star State offers special mortgage programs, counseling, and education courses for individuals buying their first home. The state also provides qualified borrowers with down payment assistance.
Down payment assistance (DPA)
Around
26% of first-time home buyers said the most challenging step in the home-purchasing process was saving for the down payment, and many new buyers had to make significant financial sacrifices to purchase the property.
DPA programs provide home buyers with grants and loans to help them cover a portion or all of the down payment and closing costs required to purchase a house. Over 2,000 DPA programs are available throughout the nation; many are run by city, county, and state governments.
In addition to standard types of loans, home buyers in Minnesota may also be eligible for a home loan funded by the state. For instance, Minnesota Housing — or the Minnesota Housing Finance Agency — offers cash and special mortgages that will provide DPA and cover closing costs.
DPA loans
If you're unable to cover the down payment on your new home on your own, you can look into specific types of DPA loans, including:
- Deferred payment loans
- Second mortgages
- Forgiven loans
An experienced local real estate agent or lender can review the different types of DPA loans available to you and which ones you may qualify for.
DPA grants
DPA grants provide down payment assistance that you’re not required to pay back. You have to meet certain requirements to qualify for a DPA grant. For instance, there may be a minimum credit score you need to have, and your income must be within the lower two quartiles of the area. The
National Homebuyers Fund is one well-known option that provides housing-related financial assistance programs, such as first-time buyer DPA grants and other responsible lending programs.
Government-backed loans
If you're a first-time home buyer, you may qualify for a federal government-backed loan to help you buy your new home with a low down payment, no down payment, or poor credit. Since these loans are insured by the government, they're typically less risky to lenders. Lenders can also offer lower interest rates. At present, there are three types of government-backed loans:
- United States Department of Agriculture (USDA) loans
- Federal Housing Administration (FHA) loans
- Veterans Affairs (VA) loans
Tax deductions
You can take advantage of various federal and state deductions that will help reduce your taxable income and save money on your taxes.
Closing assistance
Several private and government-sponsored programs are available to help cover closing costs. The
Minnesota Start-Up program provides loans for first-time home buyers with affordable interest rates. Three of the primary Minnesota DPA options that you can also use for your closing costs include:
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Monthly payment loan: With this loan option, you can take out a second mortgage of up to $18,000. You have 10 years to repay it, along with the primary mortgage payment on your home.
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Deferred payment loan: You're able to take out a loan of no more than $16,500. You can take advantage of no monthly payments and a 0% annual percentage rate (APR), but the loan must be paid back in full if you refinance or sell your home, move, or finish paying off your primary mortgage on the home.
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Deferred payment loan plus: This loan option allows you to borrow up to $18,000. It also offers no monthly payments and a 0% APR but is similar to a deferred payment loan in that you'll need to repay it if you refinance or sell your home, move, or pay off your primary mortgage.
To qualify for any of these loan options, you must use a Minnesota housing-approved lender.
Federal first-time home buyer programs
Federal first-time buyer programs come from various sources and are offered throughout the nation. They enable you to cut costs in numerous ways, including:
- Lower interest rates
- Down payment assistance
- Closing costs assistance
Government-backed loans
Lenders take on less risk with government-backed loans, allowing them to offer prospective home buyers lower interest rates, lower down payment options, and other benefits.
Good Neighbor Next Door
Sponsored by the Department of Housing and Urban Development (HUD), the
Good Neighbor Next Door Program provides firefighters, pre-K to grade 12 teachers, law enforcement officers, and emergency medical technicians a bountiful 50% off select HUD properties.
State and local first-time home buyer programs
The majority of government home-buying assistance comes from local and state programs. You can find a list of Minnesota home-buying resources on the HUD website.
Charitable or nonprofit first-time home buyer programs
You may be eligible for charitable or nonprofit home buyer assistance if you're in a low to moderate income bracket. Nonprofits and charities are organizations that are not run by the government. They provide financial and educational resources for individuals buying a home. These programs typically have income qualifications to determine eligibility.
Habitat for Humanity
This international organization is a well-known housing nonprofit that provides affordable and decent housing for low-income families.
Neighborhood Assistance Corporation Of America (NACA)
NACA is a nationwide nonprofit offering mortgage counseling and education to financially unstable households. Since mortgages through NACA require no down payment, no mortgage insurance, and no closing costs or fees, it provides individuals with affordable housing options that allow them to purchase a property for the first time.
Employer-sponsored first-time home buyer programs
Certain employers now provide different housing incentives, such as forgivable loans or grants, that help workers cover their down payment and closing costs. Contact your employer to see if they offer any first-time home buyer assistance.
First-time home buyer program FAQs
Here are some common questions asked by first-time home buyers.
What is a first-time home buyer?
First-time home buyers are individuals who haven't owned a home within the past three years. Even if you've previously owned a home, you could still qualify for certain programs for first-time buyers, provided you meet the required criteria.
Who qualifies for first-time home buyer programs?
If you own an investment or rental property — even if you're not living in it — you're not eligible to receive first-time home buyer benefits.
If you apply for a government-backed loan, note that your home will also undergo a qualification process to ensure it meets specific higher safety standards. State and local government programs will generally come with income restrictions as well.
Get the help you deserve as a first-time home buyer in Minnesota
Buying a home for the first time can feel overwhelming, but with the help of a
local real estate professional like Jake Huglen, you can sleep at night knowing you’re in good hands. As a third-generation agent, seasoned investor, and Minnesota native, Jake is prepared to help first-time buyers make homeownership a reality. If you’re a first-time buyer looking at homes for sale in Rochester or want to know more about the programs available to you, contact Jake today.
