First Time Home Buyer Programs

Buying your first home is both exciting and overwhelming at the same time. As a first-time home buyer, you should be aware of the various first time home buyer programs available to you to ensure you get the best deal possible.

Tax Credit

Buying a home this year is ideal, thanks to the economic stimulus bill that President Obama signed into law containing an $8,000 tax credit (or up to 10% of the purchase price, whichever is less) for first time home buyers. The credit does involve income limits; so if you are a single home buyer earning more than $75,000 or a married couple earning more than $150,000 a year, you will not get the full amount of the tax credit; and single buyers earning over $95,000 or married buyers earning more than $170,000 will not be eligible for the credit at all.

For those who are eligible, the tax credit is fully refundable, which means you claim it on your 2009 tax return if you buy a home and you get the full amount back even if your total federal tax liability is less.

FHA Loans

FHA loans help home buyers by reducing the down payment required to about 3.5% instead of the traditional 20%. FHA loans are offered through the Federal Housing Administration, a government program that provides mortgage insurance to lenders in order to enable them to provide loans with smaller down payments. To qualify for FHA loans, your monthly housing costs after purchasing the home must not be more than 29% of your gross monthly income, and you must have good credit history.

Private Mortgage Insurance (PMI)

If you apply for a low down payment mortgage (typically any down payment that is less than 20% of your purchase price), they may require you to have Private Mortgage Insurance in case you default on the loan. The cost of PMI is usually one-half of one percent of the mortgage amount per year. When you’ve paid your mortgage to equal 20% equity in your home, most mortgage lenders will allow you to cancel the insurance coverage.

Conventional Loans

Most lenders offer conventional mortgages that are geared toward first-time home buyers. Instead of the typical 20% down payment requirement, these programs make it possible for home owners to get into a home with a lower down payment. Some first time home buyer programs have buyers obtain a “piggyback loan” along with the down payment in order to reach the required 20% down payment on a conventional mortgage loan.

When considering a first time home purchase, make sure you check with a variety of lenders and programs to see what is available. Some state and federal programs also make it possible for first time home buyers to obtain grants toward the cost of their home, as well.