There are several different programs for first time homebuyers. Many first time homebuyers will use FHA mortgages since they only require 3.5% down. That is now one of the lowest down payment programs available - other than VA and rural development loans. Most conventional loans require 5% down, but some people may be able to qualify for 3% down depending on income and credit scores.
One of the biggest issues for first time homebuyers is usually the down payment. It is very common to ask the seller to pay the closing costs and for now, FHA will allow up to 6% in seller paid closing costs. Very rarely do you ever need that much, but for some small loan amounts, it will come close to that! Many of the closing costs are fixed and 3% of $300,000 is much different than 3% of $75,000!! If you aren't sure what your closing costs will be, ask your loan officer to give you a good faith estimate or some type of loan summary showing the costs.
Because cash is an issue for so many homebuyers, it helps to find down payment assistance programs. In Minnesota, we have access to a program through MHFA called MMP or CASA. Depending on where you are buying and what your income is, you may be able to qualify for down payment assistance of $3000, possibly up to $4500. This is a second mortgage thatyou are required to pay back when you sell your home, pay off your mortgage or no longer occupy the home as a primary residence. The program also allows for a slightly lower interest rate typically. Right now, the regular program is at 3.625% for FHA loans with MMP.
Some cities or counties have their own programs - Dakota County also has a program that is currently out of money, but they are suppose to get more money the beginning of 2012. Woodbury has a great program for those buying in the city of Woodbury. Brooklyn Center has a program for those buying foreclosed homes that will allow for up to $10,000 in down payment assistance.
If you are looking at buying a home, you may want to check with your loan officer to see what special programs are available to you. Most of them require you to be a first time homebuyer or buying a foreclosed home. Many programs have income limits. You may have to take a first time homebuyer class through Home Stretch in Minnesota.
It is a great time to buy a home with interest rates are record lows and home prices lower than we have seen in years!! If you aren't sure what you can qualify for, contact your loan officer or myself and see what you can do. There are many different programs available that may be able to help you!
