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November 17, 2018

How does the first time home buyer program work?

Buying a house for the first time is an incredibly exciting experience. However, you may not have the money or credit score to move swiftly through the lending process. Some banks might outright decline your loan preapproval. There’s an alternative in the industry called the first-time home buyer program. Learn more about this benefit so that your dream house can become a reality.

Federally Backed Loans

The first-time home buyer program isn’t a state or local entity. It’s a federally back program, states Bank Rate. The federal government covers the loan if it goes into a default situation. Because of this protection, lenders feel comfortable about lending to new buyers.

As a first-time home buyer, you have questionable risk when it comes to paying back the loan. As you pay it off after funding, your history will grow. If you ever want to buy another home in the future, you have a solid history that doesn’t require federally backing on the new loan.

Qualified Applicants

First-time home buyers are defined as people who haven’t owned a property in the past three years. You also require a credit score of 580 or higher. These qualifications make the program easily accessible to almost anyone who wants to own property. Be aware that the minimum, credit score isn’t normally a negotiable point. A good history of paying your bills with a few mistakes is enough to start the home-buying process.

Small Down Payments

First-time home buyers often hit a wall when they want to own property. They simply can’t afford the down payment. Most lenders want 10 percent of the purchase price. For a $200,000 home, the down payment would be a whopping $20,000. The federal program makes the down payment much easier for new buyers. They require 3.5 percent of the purchase price. Paying only $7,000 down on a $200,000 house is much easier for consumers than saving up thousands more. The remaining balance rolls into the mortgage payments, which are subsequently paid off over several decades.

Mortgage Insurance Constraints

According to Realtor, first-time home buying programs require mortgage insurance. This extra charge protects the lender from losing the funds if the loan goes unpaid. For the most part, borrowers will pay the insurance for the life of the loan.

It may be possible to cancel the insurance once you’ve paid back a fair amount. Talk to your lender about this possibility. Your payment history makes a case for you that the insurance isn’t necessary after several years.

If you’re still having trouble with the lending process, saving up more money or improving your credit score may be necessary. Take a few months to really dedicate your efforts to the home-buying process. When you return to the lender, an approval is almost guaranteed.

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