A Guide to First-Time Home Buyer Programs, Loans, and Grants

A Guide to First-Time Home Buyer Programs, Loans, and Grants

Today, first-time home buyers have to contend with low inventory, rising home prices, and increasing interest rates. For those that have always dreamed of homeownership, these compounding factors can make buying a property feel unobtainable. Luckily, for first-time home buyers in Connecticut, several federal and state assistance programs can help with everything from making a down payment to lowering your tax burden. These programs can reduce costs associated with buying a home and make homeownership more realistic for many.

Types of first-time home buyer programs

Buying a first home can feel like an overwhelming monetary burden. However, numerous programs are aimed at the first-time home buyer to make their dreams achievable. First-time buyers can access a number of state and government-sponsored loan assistance programs and tax breaks to lessen the financial impact of purchasing a home.

Down payment assistance (DPA)

For many home buyers, saving for a down payment can take years of careful budgeting and planning. In most cases, a down payment is essential to receive funding for a new home. However, the cost of a down payment puts homeownership out of reach for many. Real estate experts encourage home buyers to put down at least 20 percent on a home to avoid paying for private mortgage insurance.

If you are unable to save enough money for a down payment, a down payment assistance (DPA) program can help. These programs provide grants or low-interest loans to first-time homebuyers. Some buyers may even be able to obtain a zero-interest loan with the DPA program.

DPA loans

If you are unable to cover a down payment, a DPA loan can help offset some of the cost, reducing the amount of money you will need to put down. Home buyers have a few different types of DPA loans they may qualify for through the Connecticut Housing Finance Authority.

Some DPA loans are structured like a second mortgage and will have to be paid off at the same time as your primary mortgage. Home buyers can also get a deferred DPA loan, which will have to be paid in full eventually. Because payments will not start immediately, homeowners have a chance to settle their finances after moving in. Other DPA loans are set to be forgiven after a set number of years, as long as you meet the conditions specified by the loan.

DPA grants

Unlike a loan, grants do not have to be repaid. In some cases, first-time homebuyers can receive a DPA grant to help them afford a down payment or offset closing costs.

Tax deductions

First-time home buyers can take advantage of certain Federal and state tax deductions to lower their taxable income. Most homeowners can deduct their mortgage interest paid for the tax year and the total amount of their private mortgage insurance premiums.

In Connecticut, homeowners may be able to take additional deductions, including deducting uniformly assessed real estate taxes. Talking to a local tax professional can help you maximize your savings from tax deductions.

Closing assistance

Like saving for a down payment, closing costs are another expense that can put first-time homeownership out of reach for many. Luckily, some home buyers may be able to qualify for government-sponsored and private closing assistance programs.

Similar to down payment assistance, home buyers can receive closing assistance in the form of either a loan or grant that will help them cover the expenses associated with closing on their new home.

Home buyer education

For those who need help getting their home search started, free or low-priced home buyer education programs can be a valuable resource. Many of these classes are aimed at first-time home buyers and cover everything from loan options to how to apply for a loan.

Federal first-time home buyer programs

First-time home buyers have several Federal assistance programs that can help with obtaining low-interest loans or lower-priced properties for select recipients.

Government-backed loans

If you do not have enough saved for a down payment or have poor credit, you may be able to qualify for a government-backed loan. Because it is insured by the government, this type of loan protects lenders in the case of default. Thus, these loan programs can often provide lower interest rates so that you’ll pay less over the life of the loan.

Currently, there are three types of government-backed loans that buyers may qualify for. FHA loans are provided to buyers who have lower credit scores and require a smaller down payment. USDA loans are aimed at buyers purchasing property in an eligible rural community. Veterans, active U.S. military service members, and their spouses may receive VA loans.

Each of these government-backed loans comes with its own set of requirements and qualifications, so do your research and enlist the help of a professional before settling on the right one for your situation.

Good Neighbor Next Door Program

Good Neighbor Next Door is a program sponsored by the Department of Housing and Urban Development (HUD). If you are an emergency medical technician, law enforcement officer,  firefighter, or teacher of preschool through 12th grade, you may be eligible for the Good Neighbor Next Door program. This program allows eligible parties to purchase select HUD properties in revitalization areas at a 50% discount, making homeownership significantly affordable for those who serve the community.

State and local first-time home buyer programs

Home buyers hoping to move to Connecticut can benefit from first-time home buyer programs offered by the state. Connecticut currently offers a number of programs to assist home buyers in purchasing their first property.

HFA Advantage and HFA Preferred loans

If you are buying your first home in Connecticut, the Connecticut Housing Finance Authority (CHFA) offers low down payment conventional loans. Both Freddie Mac HFA Advantage mortgages and Fannie Mae HFA Preferred can be obtained through the CHFA. These loan options tend to be favorable for first-time home buyers, as they offer lower interest rates, no upfront costs, and lower rates for private mortgage insurance.

CHFA down payment assistance

First-time home buyers can receive up to $20,000 in down payment assistance from the CHFA through a low-interest rate second mortgage. This money can be used on the down payment and closing costs. In some cases, home buyers can receive an interest rate of just one percent on a CHFA Down Payment Assistance loan.

The bottom line: help is available for those buying a home for the first time

If you are a first-time home buyer hoping to move to Connecticut, plenty of programs are available to help offset the cost of homeownership. Before jumping into the home search, get in touch with an experienced local agent who can guide you through the entire real estate journey. Reach out to The Tri-Star Team at Corcoran Centric today to get started.

*Header photo courtesy of Shutterstock

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