Video:What Are First-Time Home Buyer Loans?

Transcript:What Are First-Time Home Buyer Loans?

A person's first home purchase is a big deal. It takes time, energy, and money. To help with the money hurdle, some people use first time home buyer loans.

Benefits of First-Time Home Buyer Loans

These programs vary depending on where they're offered, but the general idea is this: first time home buyer loans give financial assistance to qualified borrowers. They may do this in several ways:

• Allow for a very low (or no) down payment
• Subsidize interest costs (they pay all or part of it)
• Offer grants
• Forgive loans
• Limit fees that lenders are allowed to charge
• Defer payments

However, do note that first time home buyer loans available to you might offer any or none of these benefits.

How to Research First-Time Home Buyer Loans

You should research first time home buyer loans available in your area. A good place to start is the Department of Housing and Urban Development Web site on home buying programs.

Who Qualifies for First-Time Home Buyer Loans?

Individuals who have never owned a home are good candidates to get a first time home buyer loan. Some programs also offer first time home buyer loans to people who have not found a home within the last three years. You may have to meet certain income restrictions to qualify for a subsidized first time home buyer loan.

In general, these programs try to limit benefits to people with low and moderate income levels.You probably can't use a first-time home buyer loan to buy the more expensive properties in your area. Instead, you'll be limited to properties on the lower end of the spectrum.

You also have to live in the home as your primary residence. If you're going to rent the place out, don't use the first time home buyer loan. Finally, the home you buy most likely has to meet some physical requirements. It must be in good condition and free from any safety hazards (such as lead-based paint, for example).

Cons of First-Time Home Buyer Loans

For some first-time home buyers, these programs open the door to home ownership where a family would not have been able to buy a home. Nevertheless, first time home buyer loans can be the wrong choice in some cases. With a subsidized first time home buyer loan, you face some challenges:

• Lower value home may not be the home you want
• You might lose some of the benefits of the program if you sell your home too soon
• You may have to pay recapture tax for some of the benefits you received
• You may be limited to a short list of loan types (only 30 year fixed rate mortgages for example)
• You may have to share increased home values with the program

Given these restrictions, you may do best to avoid subsidized first time home buyer loans. You'll probably come out ahead using a plain-vanilla mortgage if you've got decent credit.

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