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First-Time Home Buyer Programs in Virginia for 2018

Liz Smith
Virginia first-time home buyer programs

Thinking about joining the eight million people who call Virginia home? Before you get packing for Old Dominion, you may want to consider some of the mortgage programs specifically built for first-time home buyers. Options from both the federal and Virginia state governments help make homeownership more accessible and affordable. Look over the options listed below and consider asking a certified financial advisor what they think is best for you.

Federal First-Time Home Buyer ProgramsFHA Loans Pros – Low down payment
– Flexible credit approval Cons – Larger down payment needed for those with a lower credit score Eligibility – At least 3.5% of the home’s purchase price upfront
– FICO® credit score of at least 500 Best For – Anyone without sufficient savings to cover a down payment

The U.S. Federal Housing Administration insures FHA loans, but you’ll need apply through an outside lender. They’re a great option for anyone that lacks the upfront funds needed to purchase a home. While conventional loans call for a 10% to 25% down payment, you’ll only need to put down 3.5% with an FHA loan.

A credit score of at least 580 is needed to uncover this 3.5% deal. If your score falls between 500 and 580, you’ll need to make closer to a 10% down payment. Even with a credit score requirement, FHA loans are one of the easiest federal programs to qualify for.

VA Loans Pros – Very low down payment
– No private mortgage insurance requirement
– Low closing costs Cons – Application process can be drawn out
– Requires VA fee payment Eligibility – Must be a current or former military member, spouse, or other beneficiary
– FICO® credit score of at least 620 Best For – Veterans earning a low monthly income

The Department of Veterans Affairs backs VA loans to help military families secure a mortgage even in financially trying times. Many veterans don’t have adequate income or savings to afford a typical 20% down payment, so VA loans come with a zero down payment feature. Plus, with the government backing part of your risk, you won’t need private mortgage insurance (PMI), which is usually obligatory and can be expensive. Closing costs are also lower than they are with conventional loans and other mortgages.

In most situations, you need a credit score of at least 620 to secure a VA loan. You also need to pay a VA fee, which ranges anywhere from 1.25% to 2.4% of your home’s value depending on whether or not you make a down payment.

USDA Loans Pros – No down payment
– Flexible credit approval Cons – Only available to those that don’t qualify for a conventional mortgage Eligibility – Must earn within 115% of the adjusted U.S. median income
– Home must be in a qualified area Best For – Low- to moderate-income individuals willing to live in a rural or semi-rural area

Legally known as a “Section 502 Single Family Housing Guaranteed Loan Program,” the United States Department of Agriculture (USDA) started backing USDA mortgages to attract new home buyers to rural and semi-rural places throughout the country.

In most cases, USDA mortgages completely eliminate the need for a down payment. Applicants with a lower credit score may need to make a down payment, though these are only around 10% of your home’s value. That’s still a considerable discount from the typical 20% down payment requirement. To qualify, home buyers must earn less than 115% of the current U.S. median income, and you must prove that you have been unable to get a conventional loan.

Good Neighbor Next Door Program Pros – Flat 50% discount on the home’s value Cons – Not available for most people or in most areas Eligibility – Must be a firefighter, police officer, emergency medical technician or teacher
– Must remain in the home for at least three years after purchase Best For – Teachers and public servants with little in savings

The Good Neighbor Next Door Program from the U.S. Department of Housing and Urban Development (HUD) is more of a discount than a loan. It allows certain public servants to pay only 50% of the purchase price to buy a home. Participants are encouraged to get a conventional, VA or FHA mortgage to pay for the home, but they can also pay cash.

To qualify, the home must be located within a HUD-designated “Revitalization Area.” Applicants must also agree to make the home their primary residence for at least three years. Once those three years are up, though, you can sell the home and earn full equity for the sale.

Fannie Mae/Freddie Mac Pros – Low down payment
– Flexible credit approval
– Several loan styles available Cons – Higher interest rates than other federal programs Eligibility – Income requirements dependent on the property location Best For – Anyone who can’t afford the upfront costs of homeownership and doesn’t qualify for other federal programs

Freddie Mac and Fannie Mae are mortgage lenders created by the federal government. They offer a number of first-time home buyer options with similar benefits.

The HomeReady® loan from Fannie Mae requires down payments as low as 3%, making it a great choice for anyone who’s strapped for cash, has a credit score of at least 620 and makes an income at or near the U.S. median. With a HomeReady® loan, you must have private mortgage insurance at the time of purchase. Luckily, you can cancel it once you’ve accrued 20% equity in your new home.

Freddie Mac, on the other hand, has Home Possible® mortgages, which come in two variations: “Home Possible: 95% LTV” and “Home Possible Advantage: 97% LTV.” LTV stands for loan-to-value, so required down payments will be 5% and 3%, respectively. These loans can be 15- or 30-year with 5/5, 5/1, 7/1, or 10/1 adjustable-rate terms. Like HomeReady loans, Home Possible mortgages come with cancelable private mortgage insurance. Best of all, you don’t need a credit history to qualify. The Home Possible Advantage mortgage is much the same, but it has credit requirements and fixed-rate terms.

NADL Pros – No down payment
– Flexible credit approval
– No private mortgage insurance requirement
– Usually comes with low closing costs Cons – Only available in select areas for select individuals Eligibility – Home must be in a qualified area Best For – Native American veterans without significant savings

A Native American Direct Loan (NADL) is another mortgage program backed by the Department of Veteran Affairs. It boasts a set interest rate currently at 4.5%, though that is subject to change based on market fluctuations. Like a VA loan, no down payment is necessary.

You don’t need a strong credit history to qualify for an NADL. You also won’t have to purchase private mortgage insurance, a benefit that extends from normal VA loans as well. Most NADLs even come with significantly lowered closing costs.

Virginia First-Time Home Buyer Programs

Virginia first-time home buyer programs

If you’re buying your first home in Virginia, you’ll want to know about the Virginia Housing Development Authority (VHDA). It offers 30-year fixed-rate loans through a statewide network of approved mortgage lenders in addition to forgivable down payment grants and federal tax breaks. Some of these programs even eliminate the need for a down payment. All loans have income and purchase price limits, which vary based on home location. The home must be your primary residence and you can’t have owned part or all of another home in the last three years. Lastly, you’ll need a credit score of at least 620 and must complete a homeownership education course.

VHDA Fannie Mae HFA Preferred No MI Pros – Very low down payment
– Low mortgage insurance requirement
– Potential to combine with Down Payment Assistance and a Mortgage Credit Certificate to save even more Cons – Higher interest rates than other state programs Eligibility – FICO® credit score of at least 640
– Income and purchase price limits dependent on home location
– Must complete homeownership education course Best For – Home buyers looking to “move up”

The VHDA has struck a special deal with Fannie Mae with this program, which is designed specifically for first-time home buyers with a credit score of at least 640. Down payment requirements start at just 3%. The affordable monthly payment and discounted upfront cost is great, but it’s the insurance benefit that really shines.

You’ll still have to get private mortgage insurance, but the premium will be heavily discounted compared to other Fannie Mae mortgages. Plus, when combined with the VHDA down payment assistance grant, home buyers actually only have to provide 1% of the home’s value upfront.

VHDA  Fannie Mae 97% No MI Pros – Very low down payment
– No mortgage insurance requirement
– Potential to combine with Down Payment Assistance and a Mortgage Credit Certificate to save even more Cons – Strict eligibility requirements Eligibility – FICO® credit score of at least 660
– Debt-to-income ratio below 46%
– Income and purchase price limits dependent on home location
– Must complete homeownership education course Best For – Home buyers looking to save on monthly payments and upfront costs

The VHDA Fannie Mae 97% No MI program is very similar to Fannie Mae Preferred, but you don’t have to get mortgage insurance at all. Since it’s a much better deal, home buyers need a credit score of at least 660 and a maximum debt-to-income (DTI) ratio of 45% to qualify.

As with the above program, home buyers can pay a down payment as low as 1% if they take advantage of the VHDA down payment assistance grant. Plus, the VHDA is very flexible in regards to down payment sources. Gifts and VHDA Plus Second Mortgages are allowed. The only downfall? Interest rates tend to be a tad higher. For 2018, the total loan value across Virginia caps at $453,100.

FHA Plus Loan Pros – Up to 100% financing
– Potential to combine with Down Payment Assistance and a Mortgage Credit Certificate to save even more Cons – Slightly higher interest rate than other VHDA loans
– Must adhere to FHA and FHA Plus requirements Eligibility – FICO® credit score of at least 620
– Income and purchase price limits dependent on home location
– Must complete homeownership education course Best For – Anyone with very little savings that feels confident they can make monthly payments

Standard FHA loans are great for first-time home buyers, but the VHDA has found a way to make them even better. The FHA Plus program adds a second mortgage designed to cover the upfront costs of home ownership. Qualified applicants can secure up to 100% financing, covering the full 3.5% or 5% down payment usually required with an FHA mortgage.

Borrowers just need a credit score of at least 620, though a credit score above 680 unlocks the best perks. Just keep in mind that the combined total of the loans cannot exceed VHDA purchase price limits. County income limits still apply.

VHDA Rural Housing Services (RHS) Pros – No down payment
– Low mortgage insurance requirement
– Potential to combine with a Mortgage Credit Certificate to save even more Cons – Only available for certain property types Eligibility – Home must be in a qualified area
– Home must be built within 10 years
– Income and purchase price limits dependent on home location
– Must complete homeownership education course Best For – Low- to moderate-income individuals willing to live in a rural or semi-rural area

The VHDA’s twist on USDA loans, known as Rural Housing Services, extends availability to any home that was built within the last 10 years. Just as with the standard USDA loan, qualified applicants do not have to provide any down payment and homes must be in rural areas.

With the VHDA version, home buyers can qualify for low monthly payments, low mortgage insurance and a discounted federal tax bill in addition to 100% financing. Virginia’s standard income and purchase price limits apply.

Down Payment Assistance Grant Pros – Up to 2.5% of a home’s purchase price to help fund a down payment
– No repayment required
– Potential to combine with a Mortgage Credit Certificate to save even more Cons – Strict eligibility requirements Eligibility – VHDA loan participant Best For – Home buyers using VHDA programs that need significant help toward upfront homeownership costs

The Down Payment Assistance Grant from VHDA provides up to 2.5% of a home’s value to help cover the down payment, no strings attached. So long as you meet all the requirements, you won’t ever have to pay the loan back. The exact size of the grant will depend on the VHDA program you are combining it with.

Same goes for the minimum credit score requirements, which starts at 620.  Home buyers must also earn less than their local income limit. The good news? If you qualify for this grant, you’re also eligible to receive the VHDA Mortgage Credit Certificate.

Granting Freedom Pros – Up to $6,000 to modify a home for increased accessibility Cons – Strict eligibility Eligibility – Must be a current or former military member, spouse, or other beneficiary Best For – Military members or veterans with disabilities

The VHDA partnered with the Virginia Department of Veteran Services to create the Granting Freedom award. This affords active and retired military servicemen and women who were disabled in the line of duty with up to $6,000 for home modifications.

You can use funds to widen doorways, add wheelchair ramps, install bars in the bathroom or make any other changes that help qualified participants feel more at home. They are available on a first-come, first-served basis.

VHDA Mortgage Credit Certificate Pros – Reduced federal tax bill Cons – Strict eligibility requirements Eligibility – VHDA loan participant Best For – Home buyers using VHDA programs that can’t afford both tax bills and mortgage payments on their own

Anyone with a VHDA loan should consider filing for the Mortgage Credit Certificate (MCC) with an approved lender. An MCC allows homeowners to claim 20% of their annual mortgage interest as a dollar-for-dollar federal tax credit. Best of all, it is valid for the life of the loan so long as you live in your home.

An MMC doesn’t cost anything for the home buyer and could save thousands of dollars in saved federal tax payments. Pair these benefits with those of your VHDA loan and you could save some serious cash.

Tips to Estimate Your Future Mortgage Costs

Virginia first-time home buyer programs
  • A down payment isn’t the only upfront cost. Don’t forget that you will also need to cover moving and closing costs, as well as other extraneous fees.
  • No matter where you buy a home, the purchase will impact your budget. Consider enlisting help from a financial advisor to help you transition through SmartAsset’s financial advisor matching tool.

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The post First-Time Home Buyer Programs in Virginia for 2018 appeared first on SmartAsset Blog.

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