If this will be the first time you've purchased a home, we congratulate you on taking this big step in life. It probably feels exciting and a bit scary at the same time, and you probably have lots of questions. We created this page to answer some common ones, but we invite you to use the chat box to ask about your specific situation.
Who is a first-time homebuyer?
Before we look at special programs, it's important to understand that a first-time homebuyer is not just someone who never has owned a home. The mortgage industry considers you a first-time homebuyer if you have not owned a home in the last 3 years. In some cases, a recently divorced homebuyer is considered a first-time homebuyer if the only home he/she owned was the primary residence owned with the ex-spouse.
How much money do you need?
Unless you qualify for a VA loan or buying in a rural area, the minimum down payment for a conventional loan is 3% of the home's price. For a $300,000 home, that's $9000. This can be money you've saved or a gift from a relative (or someone with whom you have a family-like relationship). You must complete a homebuyer education course, and most people take advantage of completing it online.
Conventional loans follow guidelines from Fannie Mae and Freddie Mac. The other popular loan program for first-time homebuyers is an FHA loan. It differs from a conventional loan in that the minimum down payment is a little higher (3.5% of the home's price), but the FHA program is more forgiving of credit issues.
Regardless of which loan program you choose, you'll also need funds to cover closing costs, the first year's homeowners insurance, and the initial escrow account deposit. While the down payment must come from your own funds or a gift, the seller can help cover the for the rest. And depending on the interest rate you choose, a lender credit also may cover some of those costs.
Down payment assistance programs
If you don't have much savings or a generous relative, down payment assistance programs may be an option. These programs offer assistance up to 5% of the loan amount to lower or eliminate the funds you need to close.
The assistance typically is in the form of a grant or a forgivable second lien. The difference between the two is grants don't need to be repaid. With a forgivable second, the loan is foregiven if you remain in the home for a specified length of time.
HomeReady and HomePossible
Fannie Mae and Freddie Mac both offer a special program for eligible first-time homebuyers that may lower your interest rate and mortgage insurance rate. Fannie's program is called HomeReady. Freddie's is called HomePossible.
Occasionally, they also offer special purpose programs targeting first-time buyers, but these programs usually are available only for a limited time and have eligibility restrictions. Check with your lender to find out about what's available now.
Mortgage interest tax credit
A mortgage interest tax credit allows eligible homebuyers to reduce their federal income tax liability based on the amount of mortgage interest they pay. The credit is applied dollar-for-dollar to reduce your income tax liability.
First-time homebuyers in Texas may have more options than they realize. The best first-time buyer plan usually comes from comparing your options and talking to your lender. A program that sounds good in a headline may not be the best fit once you look at payment, cash to close, mortgage insurance, rate, and long-term cost.