- First-Time Homebuyer Programs and How to Qualify
- FHA Loans
- USDA Loans
- VA Loans
- Teacher Next Door (Good Neighbor Next Door) Program
- Mortgage Lender First-Time Homebuyer Programs
- State and Local First-Time Homebuyer Programs
- HUD Dollar Homes
- Tips for Buying a Home
- Federal Liberals boost First-time Home Buyer Incentive and plan foreign buyers tax
- Effect on home prices
- Targeting foreign buyers
- 8 First-Time Home Buyer Loans and Programs
- Summary: First-time home buyer loans and programs
- FHA loan
- VA loan
- USDA loan
- Fannie and Freddie
- State first-time home buyer programs
- Find a lender that fits
- Home renovation loan programs
- Good Neighbor Next Door
- Dollar Homes
- First-Time Homebuyers Are Struggling to Get Offers Accepted. Here’s What You Can Do About It
- 5 Ways to Help Your Offer Get Accepted
- Prepare in advance
- Work with people who know these programs
- Write a letter to the seller
- Increase your earnest money deposit
- Find properties that aren’t selling quickly
- Bottom Line
First-Time Homebuyer Programs and How to Qualify
First-time homebuyer loan programs generally enable people with low or moderate incomes or with less-than-stellar credit scores to live a part of the American Dream, which is to say, purchase a home. Often, it’s their first home. But technically, it doesn’t have to be.
Many programs define “first-time” as just not having owned a home in the past three years. So if you sold your home or it was foreclosed on more than three years ago, you may still be eligible for one of the loan programs described below.
Some of these programs cater to specific professions those in law enforcement, education and the military.
First-time homebuyer programs help people get low-interest mortgages when they can’t secure them elsewhere. Because government organizations back many of these loans, qualification requirements are a lot less strict than they are for conventional loans.
If you think home ownership is for other people and not for you, this article may change your mind. Read on to learn more about the most popular first-time homebuyer programs.
The Federal Housing Administration (FHA) works with local lenders nationwide to offer mortgages to people who may not otherwise qualify. Because the government insures portions of these loans, lenders feel more comfortable offering mortgages to people without the strongest credit history. It’s a solid option among the various first-time homebuyers programs.
FHA loan qualification is not as stringent when it comes to credit score. In fact, a credit score of around 580 can qualify you for an FHA loan with a 3.5% down payment. Down payments for conventional mortgages usually hover above 20%. In addition, FHA loan interest rates dip considerably lower than the rates for traditional loans.
Some lenders won’t even turn you away if your debt-to-income ratio (DTI) stands as high as 55%. If at least two years have passed since you’ve experienced bankruptcy, you shouldn’t have a hard time qualifying for an FHA loan either.
However, this doesn’t mean an FHA loan — or any loan for that matter — is a risk-free solution, even loans made through first-time homebuyer programs. Because you’ll ly be making a small down payment, you’ll be required to pay mortgage insurance premiums, the FHA’s version of private mortgage insurance (PMI). This type of insurance exists to protect the lender in case you default.
You’ll also need to pay closing costs. However, closing costs for FHA loans tend to be lower than they are for traditional mortgages. And un many conventional mortgages, FHA loans carry no prepayment penalty. This means you can make larger monthly payments and pay off the loan early without facing fees.
You can also roll over the upfront insurance fee and down payment into the loan amount. However, you’ll end up paying more in the long run. You’ll also need to make a down payment around 10% if your credit score sinks below 580. But if you’re having trouble paying upfront costs, down payment assistance programs can help.
And un several conventional mortgage companies, FHA-backed lenders let you pay closing costs and down payments with gift money. But make sure the person giving you this money signs a short letter explaining that he or she doesn’t expect the money back.
FHA loans typically suit first-time homebuyers who have trouble securing loans elsewhere because of strict qualification requirements. But sticking to a solid repayment plan can help Americans with lower credit scores not only pay off a mortgage with a particularly generous interest rate but also boost their creditworthiness in the process.
Among the options of special first-time homebuyer programs, the United States Department of Agriculture (USDA) issues low-interest mortgages to low-income Americans who wish to live in rural areas. However, the USDA broadly defines “rural,” so even some suburban locations qualify.
USDA loans usually carry low- to no-down payments. Sound too good to be true? Well, the USDA either guarantees the loan so the lender is taking on less risk, or the USDA issues the loan directly (to borrowers with very modest incomes).
The USDA offers two types of loans to first-time homebuyers. To qualify for a guaranteed USDA loan, your household income can’t exceed 115% of the median income for the designated area where you intend to live. Household income is generally defined as the combined income of all members in the household even if their names are not on the loan.
Income limits depend on the area, but generally, the maximum base income level for the Single-Family Housing Guaranteed Loan Program in 2020 is:
- 1-4 member household: $90,300
- 5-8 member household: $114,650
We present these numbers to give you a general idea of income requirements. These limits can be drastically larger in high-income areas.
Moreover, a credit score around 680 typically helps you secure a guaranteed loan with a low interest rate and zero down payment. It may also put you through the streamlined process. This means you’ll skip most of the paperwork associated with conventional mortgages. If your credit score is below 680, you may need to make a larger down payment of about 10%.
With a Direct USDA loan, the government funds your mortgage directly. In other words, the USDA is your lender. These loans serve low- to very-low-income individuals and families.
Income limits depend on location. In addition, you must be the primary resident of the home for which you’re taking out a USDA loan.
You can’t make any income from the property or use it for any commercial purposes.
Because USDA loans require low down payments, you’ll need to take out insurance. The upfront premium can range from 1% to 2% of the loan amount. You’ll also owe a monthly premium of about 0.35% to 0.40%. So let’s say you take out a $200,000 loan.
You’re required to pay a 1% upfront insurance fee and a 0.35% premium throughout the year. In this case, you’d pay $2,000 upfront and a monthly premium of $58. However, you can factor the upfront premium into the mortgage amount.
In this case, you’d transfer the fee into the loan and thus turn it into a $202,000 mortgage.
Qualified borrowers can take out 15- or 30-year mortgages with fixed-interest rates. To learn more about qualifications, visit the USDA loan website. An interactive map displays designated areas and income limits for each.
The Department of Veterans Affairs (VA) issues loans to qualifying military members including first-time homebuyers.
VA loans usually carry lower interest rates than their conventional counterparts. VA-partnered lenders also offer loans with little- to no-money down. To qualify, you must meet certain requirements set by the VA and perhaps some set by specific lenders. You may be eligible for a VA loan if you’re:
- A veteran with at least 90 to 181 days of continuous service
- An active-duty service member for at least 90 continuous days
- A National Guard or Reserve member who have put in at least six years of honorable service
- The un-remarried surviving spouse of a veteran or service-member who died in the line of duty or from a service-related incident
If you qualify for a VA loan, you can shop around for different options. You can find fixed-rate or adjustable-rate mortgages (ARM) with varying repayment terms ranging from 15 to 30 years.
In addition to favorable interest rates, VA loans offer some distinct advantages. For example, they require no private mortgage insurance (PMI) and carry no prepayment penalty. The VA also sets limits for how much lenders can charge in closing costs.
However, you will be required to pay a VA Funding Fee that varies depending on your military status. It can range from 1.25% to 2.15% for most branches of the military and from 1.5% to 2.24% for Reserve and National Guard personnel. It can roll over into your loan amount at your request.
In addition, you’ll encounter some of the usual fees such as appraisal and recording fees. If you’re struggling to make payments, however, the VA counseling programs can help.
If you’re considering first-time homebuyer programs, it’s worth looking at Native American Direct Loans (NADL), which the VA backs for homes on Federal Trust Land. To qualify, you must meet the basic requirements for a traditional VA loan in addition to other terms. These requirements state you must:
- Be a Native American enrolled in an American Indian tribe or Alaskan Native village
- Belong to a tribe that has set a Memorandum of Understanding (MOU) with the VA or be married to a qualified individual
- Apply for a VA home loan Certificate of Eligibility (COE)
The VA sets the interest rate for NADLs, and they’re usually available through private lenders offering 30-year mortgages. The funding fee stands at 1.25% of the loan amount.
Teacher Next Door (Good Neighbor Next Door) Program
Neighborhoods owe a lot to their teachers, police officers and other public servants. The Teacher Next Door program helps these professionals stay in their local communities by helping them afford their homes. The initiative is also known as the Good Neighbor Next Door program. It’s sponsored by the U.S. Department of Housing and Urban Development (HUD).
Teachers, police officers, firefighters and emergency service technicians can get 50% discounts off the list price for homes in “revitalization areas.” Those areas are designated by the U.S. Department of Housing and Urban Development (HUD).
However, recipients must agree to live in these homes as their primary residence for at least 36 months. The program is also highly competitive. Eligible homes are listed on the Teacher Next Door program’s official website for only a few days.
So the first step is to get pre-approved. Afterward, a licensed Teacher Next Door agent helps you find listings available in your area.
Qualified teachers must work full time in a state-accredited public or private school serving local children in grades K through 12.
Police officers must work full time for a law-enforcement agency affiliated with a governmental body or tribal government.
Firefighters and EMTs must be employed by a fire department or an emergency response unit in the area where the home they’re interested in is located.
Teacher Next Door claims it will help you buy any home on the market if you don’t win a bid of if there aren’t any eligible homes in your area. Your agent will negotiate the lowest price and handle all the paperwork for you.
The program also provides benefits and grants to public service professionals nurses to buy their first homes. For example, the program can help medical professionals acquire their first mortgage with low down payments and no application fees.
Mortgage Lender First-Time Homebuyer Programs
Freddie Mac and Fannie Mae are public government-sponsored enterprises that serve as two of the biggest players in the mortgage industry. They even work with local lenders nationwide to offer mortgages to low-income individuals who don’t have the most solid credit scores.
Fannie Mae, for example, offers low-interest loans through several lenders. They’re meant for low- to moderate-income individuals. Down payments for these loans can be as low as 3%, and you can get one with a credit score as low as 620.
Higher credit scores will help you secure even better rates. You may also be able to cancel mortgage insurance after your home equity reaches 20%. Fannie Mae’s HomeReady program also helps low-income individuals qualify for their first mortgage.
Freddie Mac aims to meet affordable housing requirements set by the Federal Housing Finance Agency (FHFA).
In addition, you should reach out to local lenders ranging from community banks to major franchises. Many offer programs that help first-time homebuyers qualify for mortgages.
State and Local First-Time Homebuyer Programs
No matter what state you live in, you should look into your local government housing agency to see if it has any first-time homebuyer programs for which you may qualify.
The State of New York Mortgage Agency (SONYMA), for instance, offers down payment assistance and other tools and resources for low- to moderate-income first-time homebuyers.
The agency considers a person who has not owned a principal residence in at least three years to be a first-time home buyer.
Some state housing programs will partner with mortgage lenders to offer 30-year fixed rate mortgages with competitive rates for qualifying applicants. In many cases, you can even combine these mortgages with other subsidies and grants.
HUD Dollar Homes
Property in HUD’s dollar program consists of single-family homes. The FHA (a division of HUD) acquired these homes through foreclosure. When the FHA can’t sell a particular property within six months after foreclosure, it falls into the program.
The FHA then sells such a home for $1 to local governments, faith-based organizations and nonprofits helping low-income families find affordable housing. In order to land the deal, however, you’ll have to contact the organizations that participate in the program. You’ll also have to comply with the requirements they set.
The competition is fierce. Back in 2013, the local government of Gary, Indiana, made headlines when it put a few homes in the program. Within the first day, it got hundreds of applications. The town then chose 12 25 finalists in a lottery the following month.
But if you’re feeling lucky, you can visit the HUD website. Though you ly won’t find homes with $1 price tags, you should look into the HUD and local government agencies to locate first-time homebuyer programs.
Tips for Buying a Home
- Regardless of how much help you get from federal programs, you should start your mortgage hunt after you know how much house you can afford.
- Mortgage payments are just the tip of the iceberg when it comes to financing a home. Make sure you calculate closing costs and down payments. Ask your mortgage lender all about fees.
- Buying a home is a major commitment. Consider talking to a financial advisor before you buy about how it will impact your financial plan. Our financial advisor search tool can help you find a person to work with.
Photo credit: ©iStock.com/Monkeybusinessimages,©iStock.
Federal Liberals boost First-time Home Buyer Incentive and plan foreign buyers tax
Ottawa is introducing a pair of measures, as part of its economic fiscal update, to help Canadians get a foot into the housing market.
The First-Time Home Buyer Incentive is a shared-equity mortgage to reduce payments, with the Government of Canada taking on 5-10 per cent of the loan on a new home and 5 per cent on a resale home or mobile home. It’s being expanded for the high-priced Toronto, Vancouver, and Victoria markets.
When it was first introduced in 2019, the maximum home price to be eligible was 4 times household income, but is going up to 4.5 times household income in spring 2021. The buyer’s income threshold is being raised from $120,000 to $150,000. The changes mean the maximum home price for eligible first-time buyers in the three markets goes from $505,000 to about $722,000.
Uptake to date has been relatively low and the changes aim to address the concerns of critics that said $505,000 was too low considering the high prices in three markets.
“The changes implemented in the First-Time Home Buyer Incentive for prospective homebuyers in some of the priciest real estate markets including Toronto, are a testament to the fact that the federal government is listening to the changing outlook for first-time home buyers brought on by the pandemic,” Right at Home Realty President John Lusink, told Yahoo Finance Canada.
“Raising the maximum household income threshold to $150,000 from the original $120,000 announced in September 2019 will help a greater number of first-time buyers re-think the possibility of purchasing a home in major cities. Allowing potential homebuyers to purchase a home worth up to 4.5 times their annual income also injects capital into local economies, something desperately needed especially in this period of heightened uncertainty.”
Effect on home prices
A number of market watchers think the expansion could lead to higher prices in the target markets, which are already on an improbable record run during the pandemic.
“In general, these ‘affordability’ measures just stimulate demand and bump prices further,” BMO senior economist Robert Kavcic told Yahoo Finance Canada.
Paul Kershaw, UBC professor and founder of advocacy group for young Canadians, Generation Squeeze, says the expansion helps make the incentive more relevant in the high-priced regions and doesn’t expect it to stoke prices the way other measures could.
“While these subsidies for buyers can risk fueling further price escalations, CMHC research shows that its shared equity approach is less ly to inflate prices by comparison with changes to mortgage rules that would either lengthen the amortization period or reduce the interest rates at which buyers need to qualify,” he told Yahoo Finance Canada.
With that said, Kershaw says the program addresses the symptom and not the root cause.
“To get to the root causes, we need federal and provincial governments to revisit the many ways in which their policies incentivize or entangle many Canadian households to count on high and rising home prices for their security and wealth,” he said.
“By inclining Canadians to count on high and rising home prices, these policies reinforce feedback loops that result in… rising home prices, which ultimately undermine affordability for those who follow in our footsteps.”
Targeting foreign buyers
The other measure announced is a national foreign buyer’s tax. Though details were lacking, the federal government says it will take steps to implement one over the next year.
Generation Squeeze has been calling for the policy, but Kershaw says a lot more needs to be done considering affordability has deteriorated in British Columbia and Ontario, despite already having foreign buyers’ taxes.
SFU assistant professor Josh Gordon is noted for his research into the effects of foreign money on Canadian real estate. He says he was encouraged to see the federal government show greater awareness, but has some concerns about how effective it will be.
“If they are only trying to tax vacant properties owned by non-resident non-Canadians, then this is ly a small share of properties, and it won't move the needle much.
If they actually wanted to make an impact, they should apply the tax to properties where foreign money is primarily being used for the purchase, and households aren't paying Canadian income taxes,” Gordon told Yahoo Finance Canada.
“This would include properties that aren't vacant as well as properties owned by permanent residents and citizens, similar to the Speculation and Vacancy Tax in B.C.”
He also says provinces could push back on a national plan that would infringe on their jurisdiction and rob them of potential revenue. A broad strokes approach could also have other unintended consequences.
“If they do introduce the tax, they should target it at major urban centers,” said Gordon.
“There are many resort towns that rely on substantial foreign ownership, and those places will suffer if they apply the tax there. Choosing where to apply it, then, will involve some challenges.”
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on @jessysbains.
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8 First-Time Home Buyer Loans and Programs
Buying a home is so hard, they should make it an Olympic event. It’s not just the paperwork; it’s the terminology, the fees and the number of people involved. It’s natural to want to agree to whatever, sign everything and just get through the process as fast as you can.
While that may make you a medalist in downhill skiing, it won’t earn you many style points in life’s uphill battle to financial well-being.
Get answers to questions about your mortgage, travel, finances — and maintaining your peace of mind.
Summary: First-time home buyer loans and programs
Here are some of the most useful first-time home buyer loans and programs that you might overlook if you rush the process. They may score you some big savings.
FHA loan: The go-to loan program for buyers with weaker credit.
VA loan: No down payment loans for borrowers with a military connection.
USDA loan: 100% financing on rural properties.
Fannie and Freddie: Conventional loans with just 3% down.
State first-time home buyer program: Assistance specifically for residents.
Home renovation loan: Buy a home and remodel it with one loan.
Good Neighbor Next Door: Home price discounts for first responders and educators.
Dollar Homes: Foreclosed homes for sale by the government.
This is the go-to program for many Americans, especially first-time home buyers and those who have a credit history that’s … let’s say shaky. The Federal Housing Administration guarantees a portion of FHA home loans, which frees lenders to broaden their acceptance standards. With FHA backing, borrowers can qualify for loans with as little as 3.5% down.
FHA loans do have an upfront and ongoing additional cost built in: mortgage insurance premiums. This protects the lender’s stake in the loan if you default.
» MORE: Find the best FHA lender for you
The U.S. Department of Veterans Affairs helps service members, veterans and surviving spouses buy homes. VA loans are especially generous, often requiring no down payment or mortgage insurance. But a lot of military operations, the approval track is built for accuracy, not speed.
While the VA has only a few requirements for things debt and sufficient income, VA lenders may add their own “overlays,” or additional requirements.
» MORE: Find the best VA lender for you
This one may surprise you. The U.S. Department of Agriculture has a home buyers assistance program. And no, you don’t have to live on a farm. The program targets rural areas and allows 100% financing by offering lenders mortgage guarantees. There are income limitations, which vary by region.
» MORE: Find the best USDA lender for you
Fannie and Freddie
They sound classic ’70s rock bands, but Fannie Mae and Freddie Mac are the engines behind the home loan machine. These government-sanctioned companies work with local mortgage lenders to offer some appealing options on conventional loans, such as 3% down payments.
» MORE: How much house can I afford?
State first-time home buyer programs
In addition to these national programs, many state and local governments offer assistance to home buyers. Browse NerdWallet's list of state first-time home buyer programs to learn more.
Find a lender that fits
Getting ready to buy a home? We’ll find you a highly rated lender in just a few minutes.
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Home renovation loan programs
Here are a few programs that allow you to buy more home for your money.
- The Energy Efficient Mortgage program extends your borrowing power when you buy a home with energy-saving improvements or upgrade a home’s green features. If you qualify for a home loan, you can add the EEM benefit to your regular mortgage. It doesn’t require a new appraisal or affect the amount of your down payment. The program simply allows your lender the flexibility to extend loan limits for energy efficiency improvements.
- There are also FHA 203(k) loans, designed for buyers who want to tackle a fixer-upper. This special FHA-backed loan considers what the value of the property will be after improvements and allows you to borrow the funds to complete the project as part of your main mortgage.
“These loan programs are designed for buyers who want to tackle a fixer-upper.”
- The CHOICERenovation loan is a conventional loan program through Freddie Mac that allows you to finance the purchase of a home and the cost of improvements, too, with low down payments.
- HomeStyle from Fannie Mae is another conventional loan option for purchase-and-remodel projects. A 3% down payment is available to first-time home buyers.
Good Neighbor Next Door
This initiative was originally called the Teacher Next Door Program but was expanded to include law enforcement, firefighters and emergency medical technicians, hence the snappy “Good Neighbor” name.
A HUD-sponsored program, it allows 50% discounts on the list price of homes located in revitalization areas. Yes, half off. Who knew? You just have to commit to living in the property for at least 36 months.
These homes are listed — for just seven days — on the Good Neighbor Next Door sales website.
This sounds one of those late-night television offers, but HUD claims to offer $1 homes that have been acquired by the FHA through foreclosures. Needless to say, this is a tiny pool of houses.
At last check, only a handful of listings appeared on the website. Curiously, one home we checked out in the Dollar Home category seemed to be listed for $17,900.
We’re not sure what that’s about, but shop carefully.
» MORE: 5 tips for finding the best mortgage lenders
Tapping one of these resources may help you buy a home with less of a down payment, lower your interest rate, or even find a bargain in your neighborhood. Then you can have your own opening ceremony in your new home.
First-Time Homebuyers Are Struggling to Get Offers Accepted. Here’s What You Can Do About It
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There’s no two ways about it: It’s a tough real estate market for buyers.
Low mortgage rates combined with fewer homes for sale has created a feeding frenzy. Bidding wars are driving up home prices. But the problem for many isn’t affordability — it’s tough to simply get an offer on a house accepted.
This problem is compounded for homebuyers who are taking advantage of down payment assistance programs or government-backed mortgages, according to interviews with a range of industry experts.
Though they are essential tools for many first-time homebuyers, a perception exists among seller’s agents that government-backed loans, such as FHA or VA loans, will make the selling process longer or more difficult, these experts say.
“But that’s just not the case,” says Shanequa Jones, a realtor with Houston-based NB Elite Realty. “Realtors are poisoning their seller’s minds against these zero-down loans or zero-down programs,” Jones says.
“I think that’s just being uneducated on the Realtor’s side.
Work with a real estate agent and loan officer who are familiar with the first-time homebuyer programs you’re taking advantage of, so you can avoid common pitfalls.
Government-secured loans often have lower minimum credit score and debt-to-income ratio standards, on top of requiring little or no down payment. Whether homebuyer assistance programs and government loans live up to their negative reputation is a matter of debate and can be highly situational. But the bottom line is this: that’s the perception among many in the industry.
So if you’re having trouble getting your offers accepted, you’re not alone.
“I tell buyers from the beginning, this might not be as easy of a process as your parents or uncle had […] because of the market that we’re in,” says David Dye, broker and owner of the Los Angeles-based Goldview Realty. So you should approach buying a home right now with an understanding that it’s not ly to be an easy process.
While the lihood of experiencing rejection is high, you want to ensure you’re doing everything you can to improve your chances. And even though every situation is different, there are a few things you can control that may give your offer a boost.
5 Ways to Help Your Offer Get Accepted
When it comes to making your offer more appealing, some of the usual tricks aren’t available to those using government-insured loans. For example, sometimes buyers will waive contingencies that allow them to walk away from the sale under certain circumstances.
An appraisal contingency protects the buyer if the appraised value of the property ends up being less than the sale price. But, you can’t waive the appraisal contingency on an FHA loan or a VA loan.
And even in circumstances where you can waive the appraisal contingency, it’s a risky move.
“I never advise the buyer to waive appraisal contingencies or inspection contingencies […] it can be really harmful for them,” Jones says. If you waive an appraisal contingency, and the home value is lower than expected, you could be on the hook for the difference.
But there are steps you can take to strengthen your offer without putting yourself at risk.
Prepare in advance
Going through the full mortgage preapproval process with a lender before looking at houses should be your first step. During this time, the lender will verify your income, assets, and credit score. This allows potential issues with qualifying for a mortgage to be identified and addressed ahead of time.
When using a homebuyer assistance program, you’ll want to coordinate that process with your lender and real estate agent.
“The down payment assistance application should be starting at the same time as the mortgage application,” says Sean Moss, senior vice president and director of operations and customer support at Down Payment Resource, an online aggregator of homebuyer-assistance programs.
Being able to obtain down-payment assistance may help you qualify for a home loan, so it’s a good idea to involve your loan officer in that process from the start.
Many housing-assistance programs have extra steps the buyer must go through to qualify, and getting ahead of them can remove potential delays. For example, “a lot of these down payment assistance programs require that the buyer complete a homebuyer education course,” says Moss. “If that’s not done, that can cause delays.”
Work with people who know these programs
It’s essential to work with a lender or real estate agent who’s familiar with the program you’re using. If you qualify for a VA loan but your lender rarely works with veteran homebuyers, you’re doing yourself a disservice. “For the consumer, it’s important that they interview several realtors and loan officers and explore all of their options,” Moss says.
Every real-estate transaction is local and personal. “The agent and the loan officer in these transactions have a responsibility to educate the buyer and each other, but also the seller,” Moss says.
“They need to provide confidence and comfort to the seller that they have a qualified buyer.
” So work with an expert who’s familiar with the local market and understands how to sell the strengths of a buyer who’s using a government-secured loan or down payment assistance.
You should have your loan officer or agent talk to the sellers to answer any questions about the offer. “I to lay everything out for the seller.
I’ll show them the [buyer’s] credit score and that I’ve got two lenders lined up […] I’ll show them proof of funds,” Dye says.
When you work with someone who is familiar with the loan type or home buying assistance program you’re using, they will be able to more easily address the seller’s concerns.
Write a letter to the seller
At the end of the day, there’s another human being who’s selling that house and adding a little human touch could help. “I have the buyers write a letter and will include that with the offer,” Dye says. A letter gives you an opportunity to tell your story about why you’re looking for a home, and hopefully make a personal connection.
This strategy won’t always work because some seller’s agents won’t give the letter to the buyer because they don’t want to risk a fair-housing violation.
“You might be pouring your heart out about how much you love that house and it just goes to the recycle bin,” Jones says.
So in your letter, as much as possible, avoid discussions on religion, ethnicity or other topics that a seller’s agent could see as a potential liability.
Increase your earnest money deposit
As part of making an offer on a house, you’ll include what is known as a good faith deposit, or earnest money. “A deposit shows that you’ve got skin in the game, it shows that you’re not going to go out and make offers on 10 different properties,” Dye says.
Earnest money is held in an escrow account and can be included as part of the down payment at closing. If you as the buyer walk away from the deal and break the sales contract, that money may be forfeited to the seller.
But contingencies are typically included that allow the buyer to cancel their offer and keep their earnest money deposit if, for example, their financing falls through or the home’s appraised value ends up being less than the sale price.
Even though the earnest money is unly to be pocketed by the seller, increasing your deposit will make you seem a more serious buyer. “We just got an offer accepted that was originally a $5,000 deposit and the buyer increased it to $10,000 and the offer was accepted,” Dye says.
Find properties that aren’t selling quickly
Right now, homes aren’t sitting on for sale very long, and that makes it harder for buyers. “This market is tough, but I tell buyers that you have a higher chance of getting your offer accepted the longer the house has been on the market,” Jones says. If you can find a home that’s been on the market for a few weeks, then there may be fewer other offers to compete with.
It might not be easy to find homes that aren’t selling in today’s market. So you may need to expand your search to areas you weren’t initially considering.
It could be overpriced or require expensive repairs, which should factor into your offer. You should also be aware that if a home isn’t selling, there may be underlying issues.
So make sure that you have the home inspected if you suspect that’s a possibility.
Getting a purchase offer for a home is difficult right now — and this is especially true for first-time home buyers. The government-backed loans and down payment assistance programs that are designed to increase ownership are also viewed as potential complications to the closing process. So offers that involve those types of programs are harder to get accepted.
As a first-time homebuyer, you may need extra patience in getting your offer accepted. But if you take the time to prepare ahead of time and work with professionals who understand your situation, you can increase your chances of success.