Buying your first home will come with a lot of added expenses. Even if you set aside a nice rainy-day fund to account for surprising costs, chances are you’ll spend it within the first year. Whether it’s issues with the plumbing, changing light fixtures in the basement, fixing the wiring in the bathroom, or just the accrued costs of monthly home insurance payments – the list goes on and on.
Before you start questioning your decision to buy property, consider this: you have access to loans! That’s right, there is federal and state granting agencies that help first time buyers make the (sometimes rocky) transition from renters to owners. These loans usually come in the form of a grant that incentivizes the homeowner to live in certain areas or put some work into the property to increase its value.
Here are three common federal government loans to keep your eyes on:
The United States Department of Agriculture has a very popular home buyer’s assistance program. One stipulation is that you are buying property in a rural area (though this is a loose designation). The USDA offers a Single Family Housing Guaranteed Loan Program to those looking to own safe and sanitary property in rural areas. Requirements are quite basic (you have to meet income eligibility requirements and “agree to personally occupy the dwellings” as your primary residence).
The program is set up to provide 90% “loan note guarantees”, which is simply to say that the department will back 100% loans offered out by lenders to eligible homebuyers. The eligible costs cover a wide range, from help with real estate tax payments to installing broadband internet services.
In order to access this grant, you must first make an agreement with a local mortgage lender that is approved by the USDA. It’s an excellent option for first time buyers with less than average income to own a rural property.
FHA Section 203 (K)
If you are on the market for a fixer-upper, the FHA section 203 (K) loan is the perfect choice. This loan is targeted at first time buyers who want to renovate the home they live in, thus increasing its value and making it more marketable. You will need to make it very clear what exactly it is you’d like to fix, and how much it will cost. The FHA will then assess the property value once all the renovations are done.
If you do get approved for the 203 (K), the costs of the project will essentially be included in a single mortgage. The amount of your mortgage will be based on the value of the home once all the renovations are completed, minus the costs of the work involved. Part of the loan will go to the purchase of the home, while the rest will be stored in an interest-bearing account and sent to you in stages. The one stipulation is that you use a minimum of $5,000 towards repairs and improvements within six months of approval. That sounds doable, does it not?
Energy Efficient Mortgage (EEM)
The EEM is great for first time buyers looking to improve the energy efficiency of their home, but who lack the funds to do so. Support comes in the form of a “green mortgage” that, like the other loans mentioned here, is backed by the government.
The great thing about green mortgages is that you do not have to pay a larger extra down payment to receive it. The costs are included into a larger loan deal than you would otherwise be able to qualify for – the only stipulation being that you improve the energy efficiency of the home in some way. These loans are offered through the FHA, Fannie Mae, or the VA Department.