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    3 Kinds Of Government Mortgages That First-Time Homebuyers Should Know About

    “Many of my first-time homebuyers have student loans and are possibly starting a family. This is the perfect match for them and gives them more buying power they may not otherwise have.”

    Let’s face it: It’s not the most encouraging market for a first-time homebuyer in the US right now. Plus, there’s also the tricky task of finding the right mortgage, especially if you’re a literal first-time homebuyer unfamiliar with the process.

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    According to the US Department of Housing and Urban Development, a “first-time homebuyer” is someone who hasn’t owned their principal residence for three years before closing on a home purchase. Additionally, a couple may be considered first-time buyers if one partner hasn't owned a home before.

    For some first-time buyers, government-backed loans may be easier to qualify for depending on your financial situation. “The credit score range is typically wider, allowing for lower credit scores and higher debt to income ratios, resulting in more clients qualifying to purchase,” explains Debbie Dierenfeld, a realtor with Realty One Group Impact.

    “Many of my first-time homebuyers have student loans and are possibly starting a family. This is the perfect match for them and gives them more buying power they may not otherwise have.”

    But federal loan programs aren’t the best for everyone. Think of it this way: When shoe shopping, you really want to find the shoe that fits your foot. In mortgage hunting, you want the mortgage that fits your financial profile.   

    If you think that a federally backed loan might be the glass slipper to your Cinderella, here are three programs that may be well suited for a first-time home buyer, plus what you need to qualify.

    Note: For more tailored information on which loan is best for you personally, please see a certified mortgage broker. 

    1. FHA loans are a popular option for first-time buyers.

    Couple changing a for-sale sign in front of a house to read sold
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    The Federal Housing Administration (FHA) manages the FHA loan program. In terms of government-backed loans, FHA are some of the most popular due to their flexible requirements.

    Lower income homebuyers with not-so-high credit and not-so-big down payment abilities (you might get away with 3.5% down!) might be able to qualify.

    To qualify, you’ll have to:

    • Qualify for a loan with an FHA-approved lender (the FHA doesn’t loan the money directly; private lenders do).

    • Have your home price be within the limit for an FHA home in its location. 

    While these loans are designed for home seekers with less buying power, qualifying for these types of mortgages has become a bit harder recently.

    “FHA loans may be easier to qualify for, but lenders are being choosy in the current market,” says Elizabeth Renter, a data analyst at NerdWallet. “In 2021, new FHA borrowers typically have credit scores in the high 600s, compared with the mid-700s for conventional borrowers.”  

    2. VA loans exist to help veterans finance their homes.

    Soldier talking with a bank employee
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    The Department of Veterans Affairs (VA) manages the VA loan program. As you might have guessed, only US veterans can apply for this program.

    Purchase loans and Native American Direct Loan (NADL) are two types of VA-backed loans. To qualify for a NADL, however, you’ll need to be not only a veteran, but be Native American (or married to one) and looking to buy or build a home on federal trust land.  

    The great thing about VA loans is that “the VA is 100% financing,” says Dierenfeld. “It really levels the playing field for anyone interested in purchasing who may not have 10%–20% to put down on a home.”

    That’s right, no down payment, as long as the home’s sale price isn’t higher than its appraised value. Other perks, according to the VA: no private mortgage insurance or mortgage insurance premiums required, fewer closing costs, and no penalty fee for paying the mortgage off early.   

    3. Finally, USDA loans can be a great option for those who want to buy in rural areas.

    Family sitting on the porch of their rural home
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    The US Department of Agriculture (USDA) manages this program. USDA loans aim to assist low-income individuals with home payments if — and only if — they’re buying a home in a rural area. That location must be deemed eligible by the USDA (generally an area with less than 35,000 people). 

    Single Family Housing Direct Home Loans and Rural Housing Site Loans are types of USDA home loans. Other criteria that applicants must meet include:

    • Meeting certain income requirements depending on your area

    • Being unable to get a loan from other resources 

    • Buying a property 2,000 square feet or less and without in-ground swimming pools (No pool parties?! Darn!) 

    Like the VA loans, USDA loans have pretty specific criteria. But if you qualify, it's possible to get a mortgage without having to pay a down payment. 

    In addition to these national programs, there are also many state and local options you can look into as you're researching what's best for you.

    To see what's available in your area, choose your state from this list on the HUD website. 

    Have you tried applying for any of these government-backed loans? Tell us about your experiences in the comments.

    And for more stories about life and money, check out the rest of our personal finance posts.