First Time Home Buyer Loan Guide for NYC

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If you’re in the market for a home, navigating the range of home loans to find the one that’s best for you can be difficult, particularly if it’s the first time. To make things easier, the federal government and most states offer home loans tailored to first-time buyers. These loans have an array of attractive benefits that can make the home buying experience less costly and not as restrictive. However, these loans don’t suit every first-time home buyer. As such, you should look into the benefits and drawbacks before signing on the dotted line.

What is a First-time Home Buyer Loan?

A first-time home buyer loan is a mortgage uniquely tailored to people buying their first home. While definitions vary for what is a first-time home buyer, it is usually someone who has never been listed on a deed as the owner of real estate (you would need to confirm this with the loan provider when looking to obtain such a loan).

First-time home buyer loans often require a low down payment (if any), reduced interest, limited fees and the possibility of deferring payments. These types of loans are offered at a federal level by the Federal Housing Administration (FHA) and by most states. In addition, FHA first-time home buyer loan programs offer easier qualifying guidelines than many other loan types, such as allowing for higher debt ratios, lower credit scores (even if your score is under 700), limited down payments (usually 3.5 percent of the purchase price) and reduced closing costs and fees.

Pros of First-time Home Buyer Loans

The comparatively lower restrictions on these loans make them ideal for first-time home buyers, particularly if you do not have a significant amount of money saved for a down payment, you have a limited ability to meet high interest payments and fees, or your credit score is not high enough to qualify for other loan types. Even if you do have funds saved for a large down payment, the low interest rates on first-time home buyer loans are often too good to pass up.

The aim of these loans is to bring the American dream of home ownership within the reach of as many citizens as possible, and they have been a great success in helping families who would otherwise not have been able to buy a home.

Cons of First-time Home Buyer Loans

These loans may not be the best option for all first-time home buyers. In particular, most loan programs for first-time home buyers impose a limit on the cost of the property you’re looking to buy. Often, the loan limit may only be 60 to 75 percent of what you could receive with a conventional loan. This means that your chances of using one of these loans to buy a more expensive property are limited. If, for example, you are hoping to buy a large family home in a middle- to upper-class metropolitan neighborhood, you can probably forget about finding a first-time home buyer loan program that will be willing to lend you the amount of money you need.

The other major drawback with many of these loans is that the home you buy has to become your primary place of residence. If your intention is to buy the property as an investment to rent out, you probably would not be accepted for a loan.

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