5 Ways to Get Financial Help When Buying Your First Home

home for sale

A house for sale by owner | Source: iStock

Home sales are surging across the country, and with that comes higher-priced real estate. Nationwide, home prices increased 6.9% between January 2015 and January 2016, according to data from CoreLogic. Prices may rise another 5.5% by January 2017.

Higher prices plus relatively few homes for sale spell trouble for first-time buyers. “A restricted supply of homes for sale will mean increased competition for those homes that are available, potentially leading to bidding wars that can price out entry-level or first-time buyers,” wrote Zillow’s Svenga Gudell.

Not only is it more difficult for people to find a home they want to buy, but high prices are making it difficult for many to save enough for the standard 20% down payment, especially when budgets are tight. Nearly 30% of non-homeowners surveyed by Bankrate in 2016 said not being able to afford a down payment was keeping them stuck in rental housing or living with family.

Would-be homeowners shouldn’t give up on their dreams of home ownership just yet. There are programs out there designed to help people cover a down payment or get a more affordable loan, and they’re not only available to people with low incomes.

Up to 87% of properties would qualify for down payment or mortgage assistance, if buyers only knew were to look, a study by RealtyTrac and Down Payment Resource found. The average amount of assistance is $11,565.

“When you think of down payment assistance, you think of borrowers that are income challenged, but these are not just for low-income folks,” Deborah Holloway, a loan specialist at Shelter Mortgage Co. told Bankrate.com. “They are for working people who make a decent income but don’t have enough to save for a down payment.”

Below are a few programs that might help you turn your dreams of home ownership into reality. To find out what other programs might be open to you, check out Down Payment Resource, which will help you find down payment assistance programs in your area, or HSH.com’s state-by-state directory of home buyer initiatives.

1. Down payment grants based on income

Source: iStock

Down payment grants can help middle-class Americans buy homes. | Source: iStock

Yes, you can get free money to buy a house, if you know who to ask. State, county, and city governments often have pools of money available to help make home ownership more affordable for people of all income levels.

Usually, your income must fall below a certain threshold, but in pricy housing markets, that number can be higher than you realize. In California’s San Diego County, for example, grants may be available for people earning as much as $102,200 a year through the Golden State Platinum Down Payment Assistance Program.

“About 90% to 95% of buyers don’t realize they might be eligible for down payment assistance,” Rob Chrane, president of Down Payment Resource, an Atlanta-based company that helps connect customers with down payment assistance, told Fox Business. “It’s not really widely known.”

2. Wells Fargo LIFT programs

Wells Fargo’s LIFT programs provide down payment assistance grants to eligible home buyers in select communities across the country, including San Diego; Philadelphia; Bakersfield, Calif.; New Haven, Conn.; and Detroit. Grants of up to $15,000 may be available, depending on where you live. To qualify, you must earn less than 120% of the median income for the area (in some cities, less than 80%) and the home must be your primary residence.

3. Grants for college graduates and other special groups

college graduate

Some cities and states offer housing grants to recent college grads. | Source: Thinkstock

States and cities generally want to do all they can to attract educated workers to their area. To make that a bit easier, some have special grants for college graduates to help them buy homes.

Grant County in Indiana will give people with a bachelor’s degree who have a full-time job in the county up to $5,000 to use for a down payment for a home. In Ohio, first-time home buyers who meet other eligibility requirements (including having completed a bachelor’s degree in the past two years) may receive a grant worth 2.5% of their home’s purchase price.

In some areas, incentive programs are available for teachers, members of the military, and people who work in law enforcement. In Iowa, service members and veterans can apply to receive up to $5,000 for a down payment or closing costs, for example. In Texas, military, teachers, police, and fire fighters may receive a grant for 2% to 5% of the home’s purchase price.

4. Good Neighbor Next Door Program

If you’re a teacher, fire fighter, police officer, or emergency medical technician, you may be able to get a home for 50% off the list price through the Good Neighbor Next Door Program.

Sponsored by the U.S. Department of Housing and Urban Development, the program offers certain homes in designated “revitalization areas” at a significant discount. To be eligible, you must work full-time in an approved occupation and agree to live in the home for three years.

5. Low down payment loans

mortgage loan approved

Even if you don’t have a 20% down payment, you may still be able to get a mortgage. | Source: Thinkstock

While they suffered a bad rap following the mortgage crisis, low down payment loans still exist, and they can be key to helping first-time buyers purchase a home. Loans insured by the Federal Housing Authority (FHA) are the best known, and buyers can put down as little as 3.5%.

Fannie Mae and Freddie Mac will also guarantee loans with down payments as low as 3%. No-money down loans from the U.S. Department of Agriculture are another option for would-be homeowners with low or moderate income but without a lot of cash, though there are restrictions about where and what kind of home you can buy.

You will pay a bit more if you go with the low down payment loan. Private mortgage insurance (PMI) is usually required for loans with a down payment of less than 20%.

Follow Megan on Twitter @MeganE_CS

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