Ready to Buy Your First Home in 2023? Read These Mortgage Tips Now
For so many first-time homebuyers, saving up enough money to make a down payment on a home can take years. But as much of a challenge as it is, it is certainly worth it because putting at least 20 percent down on a home can help a first-time buyer secure a lower interest rate and avoid having private mortgage insurance (PMI) included in their monthly mortgage payment. That said, not every first-time buyer can save money when they have so many other financial obligations to satisfy. Luckily, help is available.
If you’re in the market for your first home but you’re having difficulty saving money for a down payment, then this doesn’t mean that you are going to be out of luck. Financing help is available from a variety of resources that can help you achieve your dream of owning a home in 2023. This guide will help get you started.
First-Time Home Buyer Programs
Just about every lender has first-time home buyer programs available that can help people afford their home purchases. These programs consist of specialized mortgage loans and incentives, most of which are backed by the government and/or public and private banks.
Some of the most common types of first-time buyer programs include:
- Low-down payment mortgages (typically requires a down payment of 5 percent or less)
- No-down payment mortgages (backed by the government)
- Mortgage loans that give interest rate discounts to first-time buyers
- Mortgage loans that relax approval standards for first-time buyers
- Mortgage loans with special terms based on the buyer’s profession
First-Time Home Buyer Grants
Some first-time home buyers may be eligible to receive grants, which are cash awards paid to new homeowners at the time of purchase, that can help them save money on their homes. Grants are awarded at the federal, state, and local levels, with many available through charitable organizations and housing foundations.
The best thing about these grants is that you don’t have to repay the funds you receive because the grants are essentially considered contributions toward homeownership. A popular grant is the one offered by the National Homebuyers Fund. This grant awards home buyers with up to 5 percent of their home’s purchase price. To receive the grant, home buyers are required to sign an agreement that says they’ll live in the home and make it their primary residence for at least five years. Call (916) 444-2615 for a list of participating lenders.
Some state and local governments also offer first-come, first-served cash grants to first-time buyers with awards ranging anywhere from $500 to $50,000. The money can be used for closing costs, put towards mortgage rate reductions, and even for making a down payment on a home. These types of grants often require home buyers to earn an income within the area and they may also be required to meet a minimum credit score to qualify.
You can find housing grants and programs available in your area by visiting your municipality website, search for “housing assistance” or “housing grants,” and review the program requirements to find the one that’s best suited for you.
First-Time Home Buyer Tax Credit
The 2023 First-Time Home Buyer Tax Credit Act is an updated version of the popular first-time buyer program that grants first-time home buyers up to $15,000 in refundable federal tax credits. At the time of this writing, the updated Act has yet to be passed but once it’s passed, the amount first-time buyers can receive will be equal to 10% of the home’s purchase price, not exceeding $15,000 in 2021 inflation-adjusted dollars.
The $25,000 Downpayment Toward Equity Cash Grant
Another first-time home buyer grant that has yet to be passed by Congress is the Downpayment Toward Equity Act. This grant is designed to award first-time home buyers up to $20,000 and an additional $5,000 to certain buyers from socially or economically disadvantaged backgrounds. Once passed, home buyers will be able to use the money received from this grant to make a down payment, pay their closing costs or real estate taxes, or purchase points to help access lower mortgage rates.
Additional Financial Programs for First-Time Home Buyers
Today, there are plenty of ways for first-time buyers to receive the financial assistance they need to get into their homes. Here are a few more exciting opportunities that you might want to consider:
- Forgivable Mortgages: A forgivable mortgage is a conventional loan that is released after the homeowner satisfies a specific condition. Most commonly, this is making on-time payments for five years. Forgivable mortgages are usually smaller loans used for making the down payment on a home. For instance, if a first-time buyer uses a $15,000 forgivable mortgage to make their down payment, over the next five years, if they make all their payments on time, the lender will forgive the $15,000 loan.
- The Good Neighbor Next Door Program (GNND): The Good Neighbor Next Door Program (GNND) is available from the U.S. Department of Housing and Urban Development (HUD). This program helps first-time buyers purchase homes that were repossessed at half-price. Good Neighbor Next Door is available to teachers, firefighters, law enforcement officials, and emergency medical technicians who want to live in the same community where they work. To apply for Good Neighbor Next Door, find a home on the HUD website and apply for the mortgage online.
- Closing Costs Assistance Programs: Some first-time buyers may be eligible for closing cost assistance programs that are designed to cover up to 100% of their closing costs, including title expenses, transfer taxes, and mortgage fees. To learn more or to find a program available in your state, visit the National Council of State Housing Agencies website for an active list of closing cost assistance programs. Most of these programs require the buyer to meet minimum credit standards and, in some cases, local income thresholds. Homes must also meet minimum safety and quality standards.
- Deferred Mortgages: Deferred mortgages are one of the more unique products available to first-time buyers. This type of mortgage requires no repayment while you live in your home. You only repay the mortgage when you sell your home or refinance it. Many municipal governments and local foundations offer deferred mortgages up to $25,000 and they are usually limited to first-time buyers whose income falls below area averages and whose credit history shows a record of on-time payments.
Get the Financial Assistance You Need to Become a Homeowner
The above financial assistance programs are just a sampling of what’s available for first-time homebuyers, so this serves as a good place to start on your journey. For even more resources, ask your lender because there may be certain programs that are only available in your local area.
