First time home buyers in Raleigh have some great mortgage options in 2023. Many of these programs offer little to no down payment for eligible home buyers.
In general, first-time home buyers account for approximately 35-40% of all home buyers year after year. When people buy homes they also spur buying in other economic sectors such as appliances and home improvement goods. The “trickle-down” list of beneficiaries is long and always makes a positive economic impact.
There are many mortgage programs designed to encourage the first-time home buyer with financial assistance to help cover costs associated with a down payment and closing costs. Since these things are the primary barrier to initial home ownership, there are special grants available in various communities that also help get first-timers into their very own home. Homeownership sparks a community’s economic progress and helps support property values and hence property tax revenue.
Homebuyers that have questions can submit the Quick Request Form to speak with a specialist – 7 days a week. We serve home buyers throughout North Carolina.
Many first-time buyer programs in 2023 do not require a special grant, bond, or down payment assistance program. Since many programs require little to no down payment buyers can close on a home with little cash needed. Furthermore, the loan approval process is pretty quick and can often be completed during a single call.
There are three government-backed programs that are popular with first-time home buyers due to the limited about of cash needed to close. These three programs carry a guarantee to the lender that will compensate a lender for part or all of the loss incurred should the loan ever go into default. These three loan programs are FHA, VA and USDA mortgages. Let’s take a closer look at each.
FHA Home Loan
Backed by the Federal Housing Administration and offered through approved lenders and banks. The FHA minimum down payment is just 3.5% of the sales price and is the most popular choice among first-timers. The majority of FHA borrowers are in fact first-time buyers, even though the program is not relegated to strictly first timers. Any eligible home buyer can take advantage of the FHA loan program assuming they meet the qualifying requirements in place.
This low down payment mortgage requires much less down compared to a conventional loan. Conventional loans, those underwritten to standards set forth by Fannie Mae and Freddie Mac often require a down payment of at least 20% of the sales price to avoid private mortgage insurance and a minimum down payment of 10% if accompanied by a private mortgage insurance policy.
FHA loan limits are set depending on the property location and are generally less when compared to conforming loans. The FHA loan limit for most of NC is currently $472,030 (1 unit) and slightly higher for high-cost locations.
FHA provides different home financing options that help make homeownership easier for U.S. home buyers to purchase. Even with limited credit, down payment and resources, FHA offers great flexibility. Everyone knows that home costs can be pretty expensive, especially in high-cost locations like California and Florida.
As a result, many first-time buyers have trouble saving the 10% + down payment required for most conventional loans. The FHA program is widely used throughout the nation, with financing up to 97.5%, and homeownership is often obtainable for many buyers.
Main Advantages of FHA Loans:
- Lower credit scores are acceptable (620 min)
- Secure 15 or 30-year fixed rate term.
- Down payment as low as 3.5%
- 100% gift funds may be used for the down payment and closing costs.
- Many down payment assistance programs are eligible to assist with 3.5% down.
- The home seller can pay buyers closing costs – up to 6 percent. With this, the buyer only needs the 3.5% down payment.
- No pre-payment penalties, or early payoff fees. Buyers can sell and move whenever they choose.
- Non-occupant co-borrowers or co-signers are permitted.
- FHA upfront mortgage insurance premium (UFMIP) of 1.75% can be included in the borrower loan.
- FHA streamline refinance permitted with NO equity or appraisal.
- FHA cash out refinance options up to 85% loan to value.
- Owner-occupied properties, primary residence only.
VA Home Loan
The VA home loan is one that is backed by the Department of Veterans Affairs and requires no down payment whatsoever and restricts certain closing costs the veteran is allowed to pay. This means those who are eligible for the VA home loan come to the closing table with much less down, especially when compared to a conventional mortgage.
For those who are eligible for the VA home loan and are looking for a mortgage that requires as little cash to close as possible, there’s no better choice. Eligible borrowers include veterans of the armed forces, active duty personnel with at least 181 days of service, members and veterans of the National Guard and Armed Forces Reserves are eligible as well as spouses of veterans who have died as a result of a service-related injury.
Borrowers are also limited to the types of closing costs they are allowed to pay. Borrowers are only allowed to pay for an appraisal, a credit report, title insurance and title-related charges, an origination fee, recording fee and a survey. All other fees must be paid for by the seller, the lender or from an eligible nonprofit.
In the rare case of a default, the lender is compensated at 25% of the loss. This guarantee is financed with an upfront mortgage insurance premium that is rolled into the loan amount and does not have to come from the borrower’s own funds.
Main Advantages of VA Home Loans:
- 100% Financing for all VA-eligible home buyers.
- No down payment.
- Private mortgage insurance is not required – this alone can save homeowners thousands each year.
- Competitive fixed interest rates.
- Flexible income, debt, and credit requirements.
- Gift money is allowed.
- No pre-payment penalties, or early pay off fees.
- One-time VA funding fee can be included in the buyer’s loan.
- Buyers that have used their VA loan entitlement in the past may still be eligible.
- A one-time VA funding fee can be included in a borrower loan. The VA funding fee is most commonly 2.3% for first-time users. However, the costs can be 0% – 3.3% depending on disability and usage.
- Great refinancing options available if ever needed – VA IRRRL, 100% VA cash-out refinance, etc.
USDA Rural Housing
It might at first glance seem odd that the United States Department of Agriculture has a mortgage program but it certainly does. The USDA loan is another government-backed mortgage program that requires $0 down payment from the home buyer and also has some very low-interest rates. The USDA loan comes in one option, the 30 year fixed rate loan. There are no 15 or 20-year options but the 30-year term keeps the monthly payments lower compared to shorter-term loans.
The USDA program was designed to help consumers finance homes in more rural and semi-rural locations. The USDA keeps a database regarding where these properties must be located, please see the USDA map here.
Buyers won’t find any USDA-eligible locations in the immediate area of Raleigh but may be surprised to find many outlying locations are still approved. The Rural Housing program is financed by the 1% guarantee fee which is rolled into the loan amount and finances the fund that compensates the lender in the event of default.
The USDA loan also limits the household income of the borrowers to approximately 115% of the median income for the area. Other than these two restrictions (location and income) the USDA mortgage is available to anyone and is likely the first choice for those who are buying in eligible areas and need a mortgage program requiring little cash to close.
Main Advantages of USDA Rural Development Home Loans:
- Up to 100% financing – No down payment required.
- Easy credit qualifying requirements (620 min credit score)
- No maximum purchase price or loan amount limits with USDA. Buyers qualify based on their debt to income.
- Safe and secure 30 YR fixed terms.
- Like FHA and VA, there are no early payoff fees.
- Eligible property types include existing homes, new construction, Planned Unit Developments (PUD’s), eligible condominiums, short sales, and foreclosures located in a USDA RD approved locations.
- Gift/Grant Funds/Mortgage Credit Certificates (MCC’s) and Seller Concessions are allowed for closing costs.
- Not limited to first-time homebuyers, any eligible homebuyer can apply. Owner-occupied primary home only.
Buyers that have questions about any of the first-time buyer programs listed above can reach out to us 7 days a week for more information. Please call Ph: 904-810-2293