First Time Home Buyer Loans
- Last Updated: Wednesday, 20 January 2021
Information concerning low cost first time home buyer loans is available through state and federal agencies in cooperation with private lenders. To speed up the process, these government agencies have preapproved lenders to work with home buyers.
In this article, we’re going to discuss some of the larger government institutions that are charged with the task of helping Americans buy a home. We’re also going to provide information on how to find a first time home buyer loan at attractive rates. Then we’ll finish up by providing links to some online tools that can help users figure out how much money they can borrow.
First Time Home Buyer Dreams
When it comes to first time home buyers, the government really has a clear vision. They would like individuals to qualify for mortgages and take ownership of homes. In fact, the department of Housing and Urban Development, or HUD, talks at length about their hope that all Americans will be able to convert their monthly rent checks into mortgage payments.
Loans through Fannie Mae
Fannie Mae is a privately owned company that is intimately involved with home buyer loans, and they even have some interesting language in their Mission Statement: “…to tear down barriers, lower costs and increase opportunities for home ownership…” Even more to this point, they describe themselves as being in the American Dream business.
The name Fannie Mae may be familiar, but their role in contributing to this American Dream is not always understood. Their role in the housing industry is to make sure there is a robust secondary market for home loans or mortgages. They do this by purchasing home loans such as mortgages from lending institutions.
For good business reasons, banks are limited in the number of loans they can write and hold. Fannie Mae will repurchase these loans from banks, which then allows banks to write additional loans. By doing so, this keeps the home buying market healthy.
Home Buyer Grants and Programs
The U.S. government provides three categories of services to first time home buyers. Grants are money that is paid directly to the buyer. This can run from funds used to offset closing costs, through money that is paid directly to qualifying home buyers to help pay for the cost of the home itself. This second grant is nearly always run at the state level. Our article on First Time Home Buyer Grants covers this topic in more detail.
The programs run by both state and federal governments usually target certain segments of the American population. Some of the larger home grant programs include the Officer Next Door and Teacher Next Door, which are now part of the Good Neighbor Next Door program, and the Home Ownership Voucher initiatives.
Good Neighbor Next Door attempts to get police officers, firefighters, emergency medical technicians, and teachers to live in the communities they serve. The home ownership voucher program is specifically targeted to the first time home buyer that has trouble making their monthly loan payments. More information about these programs is available in our article on First Time Home Buyer Programs.
Federal and State Loans
The federal government currently runs two loan programs that support the first time home buyer. The first is for veterans with honorable discharges, termed the VA loan. There are eligibility requirements, but these loans offer attractive financing terms to home buyers that qualify. More information on the VA loan program is available here.
The second loan program run directly by the federal government is the U.S.D.A. Rural Development Direct Loan program. Under this program, qualifying families can receive financial assistance through loans that are offered at very affordable interest rates. Individuals interested in these programs can find more information through the U.S. Department of Veterans Affairs.
State Loans for the First Time Home Buyer
The vast majority of help offered to the first time home buyer comes at the state and local level. While the federal government is primarily responsible for funding these programs; logistically, they need to be run locally. That’s because most state governments are already running payment assistance programs, and they’ve established their network of local outreach contacts. For the federal government to build their own system would simply be inefficient.
For those individuals or families that are struggling to achieve home ownership, the HUD website is the place to visit. They have all the tools necessary to help first time home buyers with their loans and purchase decisions. They even have calculators that help to figure out how large a FHA loan can be for a given level of income.
They also have special insurance programs that help lenders and individuals reduce the risk of default on loans. If a buyer has bad credit, HUD can walk them through the process of reestablishing good credit, which can eventually help them to qualify for a loan.
Finally, HUD acts like a clearinghouse of information for all of the state and local programs. Individuals that want to figure out the exact loans, grants, and programs offered to first time home buyers at the state and local level need to visit HUD’s website.
Loan Tools and Mortgage Calculators
Anyone interested in working through some scenarios will find over a dozen mortgage calculators on this website that can help them to gain a better understanding of the financial commitment that comes with owning a home. Those aimed at the first time home buyer include our maximum mortgage calculator, mortgage comparison calculator, and we even have a tool that helps to figure out mortgage tax deductions too.
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