New Opportunities Open Up for
In the coming year, more than 1.5 million consumers will purchase their first
home. How do they do it -- and how can you be one of them?
"First-timers now represent nearly 30 percent of all existing home
purchasers," said Ray Brousseau, executive vice president of a nationwide
lender. "That's a big percentage, but it could be a lot higher because
there are many ways first-time purchasers can finance with little down and
Many of these buyers are able to afford a new home because they know that the
mortgage marketplace has two separate ways to help them: First, there are
traditional loan options. Second, there are more than 1,500 mortgage assistance
plans for buyers purchasing a first home.
No Need For 20 Percent Down
The big barrier for many first-time buyers is cash. It takes cash for a down
payment, and it takes cash to close. Lenders are generally looking for buyers
with 20 percent down, but given that the typical home sells for more than
$200,000, there are a lot of first-time homebuyers who have not accumulated the
$40,000 or more that lenders prefer.
The good news: There are many ways around the 20 percent requirement with
traditional loan options.
"It doesn't take a lot of up-front cash to buy a home today," said
Brousseau. "FHA and conventional financing are all available with little
down, while VA borrowers can qualify for mortgages that require no down
The way such programs work is that they substitute insurance for the 20 percent
down that lenders would otherwise want:
• Conventional loans are available with as little as 3 percent down plus what
is called "private mortgage insurance" or PMI.
• FHA mortgages require an up-front mortgage insurance premium (MIP), plus an
annual MIP based on the outstanding loan balance. Mortgages backed by the FHA
are available nationwide and typically require just 3.5 percent down.
• VA financing is available for those with qualifying service, such as military
personnel, as well as officers in the Public Health Service and the National
Oceanic and Atmospheric Administration (NOAA). VA loans are available with
nothing down. There is an up-front "guarantee" fee, but no annual
"Instead of $40,000 for a down payment, many borrowers can get a $200,000
loan with $6,000 or $7,000 down, or even nothing down if VA-qualified,"
Brousseau said. "That means qualified first-time homebuyers can buy a
house today instead of waiting years to save 20 percent down."
Mortgage Assistance Plans
According to DownPaymentResource.com, there are more than 1,500 assistance
plans administered by more than 1,000 agencies nationwide for would-be buyers,
many aimed specifically at first-time purchasers.
In looking at these programs it's important to understand what the term
"first-time buyer" means. It typically does not mean someone who has
never owned a home; instead the usual definition for program qualification
purposes is someone who has not had title to a home during the past three
This definition is important because it provides a way for people to re-enter
the housing marketplace. For instance, suppose the Smiths owned a home and sold
it to move to a job in a new community. Three years later they are
"first-time" purchasers under the guidelines used by most assistance
"Another important point about mortgage assistance programs is that many
are specifically designed to encourage local home purchases by public-sector
employees such as teachers, police, firefighters, nurses, and corrections
workers," said Brousseau. "There are millions of people who qualify
for such assistance."
The benefits available through mortgage assistance plans vary. For instance,
borrowers may be able to get financing at below-market interest rates. Down
payment grants may be available, essentially meaning that little or nothing
down will be required. Another approach includes programs that offer tax
Mortgage interest is generally deductible, but a "tax credit" is
arguably more valuable. With what are called "mortgage credit
certificates" or MCCs, borrowers can deduct directly from their actual tax
bill. For instance, if you have $8,000 in mortgage interest you might be able
to directly reduce your taxes by $1,600 while the remaining $6,400 can be
treated as an itemized deduction.
"Given low interest rates and a firming housing sector, this is a terrific
time to consider entering the real estate market," said Brousseau.
"With today's financing choices, many buyers can own their own home a lot
quicker than they might have thought."