Purchasing a home is a major milestone for anyone, let alone a first-time homebuyer. And one of the biggest hurdles to clear is saving for a down payment. Fortunately, for first-time buyers, there are plenty of programs available to help achieve your dream of homeownership faster – and often with lower closing costs, mortgage rates and monthly payments. In this blog post, we’ve broken down some helpful programs available to first-time buyers at both the national and local level.
Use Case: First-time Homebuyers Who Need to Bridge the Gap Between Savings and Down-Payment Needs
The Lowdown: This program eases the financial burden of upfront costs by providing a minimum of $5,000 in down-payment and closing cost assistance and an additional 1% of the sales price or $3,000. These funds can be used to cover anything from the down payment to moving costs. Currently, this program is available in select, eligible census tracts in over 20 metropolitan areas in and around Chicago. Proper Rate is one of the few lenders that offer this program.
Use Case: Markets Where Housing Costs are Above the National Average
The Lowdown: Higher interest rates and rising home prices have challenged first-time buyers – even those earning six figures. FirstHome+ clears a path for many of these buyers by eliminating certain loan terms and upfront fees for households earning up to 120% of area median income in high-cost areas. That includes Chicago, where households earning up to $126,480 can still qualify for this program.
Use Case: Buyers Who Earn More than the Area Median Income
The Lowdown: Another program that helps buyers earning more than the area median income is Freddie Mac’s BorrowSmart Access, which offers a $3,000 grant to households earning up to 140% of the area AMI. Keep in mind that $1,500 of the funds is taxable as income and needs to be declared come tax season.
Use Case: First time buyers who need down payment assistance and may not qualify for conventional mortgages
The Lowdown: Although most lenders require a minimum credit score of around 650, you can still qualify for an FHA loan with a credit score as low as 500. For applicants with credit scores of 620 and above, down-payment requirements start at just 3.5%. (Below 620, the minimum down payment is 10%).
It’s important to consider other costs if you do opt for a low down-payment option. FHA loans may come with Mortgage Insurance Premiums (MIP), which require payment throughout the loan’s lifetime. MIP is designed to protect lenders if a borrower defaults on their FHA loan.
Use Case: Grants and Loans for Down Payments
The Lowdown: The IHDA is a popular resource for down-payment assistance in Illinois. It offers various grant options, including forgivable ($6,000), deferred ($7,500), and 0% interest loans ($10,000 spread over ten years).
Next Steps: Find Your Home Loan
Understanding these first-time homebuyer programs is a great first step.
Call us if you have any questions.
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