Programs to Help Your First-Time Homebuyers Save More
One of the greatest obstacles for first-time homebuyers is the initial down payment.
The down payment obstacle often seems insurmountable to first-time homebuyers, especially because so few realize they can buy a house with as little as 3% down.
But even saving that 3% on top of everyday expenses like rent, groceries, and gas can be challenging for some borrowers. Luckily, there are many financing options first-time homebuyers can take advantage of. However, you shouldn’t assume that first-time homebuyers know all their options.
By knowing more of the options available to first-time homebuyers and knowing more about them, you can facilitate a better mortgage funding process for your borrowers.
GSE and State Programs
There are many well-known and widely available loan programs for lenders to provide to their first-time homebuyers. Your company may offer some or all of the first-time homebuyer programs available through Fannie Mae, Freddie Mac (GSEs), and the state/municipality Housing Finance Agencies.
HomeReady® and Home Possible®
HomeReady and Home Possible are both 97% LTV programs offered by Fannie Mae and Freddie Mac respectively. Both programs are geared toward low-to-moderate income individuals with limited cash for a down payment and allow for credit scores as low as 620. While neither have the requirement that a borrower be a first-time homebuyer, they tend to suit that type of borrower’s needs well.
Learn more about HomeReady and Home Possible with our training webinars.
Over the years, these programs have gotten more similar. A newer change to both programs is how borrower eligibility is determined. For properties in low-income census tracts, there is no borrower income limit. For all other properties, the borrower income limit is based on 100% of the area median income (AMI). You can find the eligibility limits through the HomeReady and Home Possible lookup tools.
Housing Finance Agency Programs
HFA programs vary state by state and municipality by municipality. Their programs are built to suit the citizens of each state.
Typically, an HFA will accept reduced MI coverages which reduces the mortgage insurance rates and saves your borrower money.
In many cases, you can also tap into down payment assistance programs (DPA) for your qualified borrowers. These DPA programs are typically funded through grants, secondary financing, or forgivable loans.
Other Funding Sources
Apart from structured programs like we mentioned above, there are a few other funding options you should know about to help your first-time homebuyers get the most out of their financing.
Pledged Assets: Come in the form of cash/savings or certificate of deposit in lieu of a traditional down payment; pledged assets can come from immediate members of borrowers’ families or from borrower themselves.
Gift Funds: Cash gifts that come from family members that are used for down payment funding or closing costs; needs to be documented as such.
Non-Occupying Co-Borrower(s): Co-signer on home may have the assets, collateral, and/or credit score to help your borrower qualify for the loan; co-signer agrees to take on responsibility for the mortgage if it’s not paid; the co-signer cannot reside in the purchase property.
Knowing about these different programs and sources of funding will help build your reputation as a lender. Through your knowledge of flexible programs and funding for first-time homebuyers, you can end up with happier customers and also build a reputation as a problem-solver for borrowers.
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