Buying a first home is an exciting but daunting experience, especially these days. With wildly fluctuating interest rates, unpredictable inventory, and a tight housing market to boot, Colorado first-time homebuyers are dealing with a lot more than their parents did. Still, folks who want to purchase their first properties in the next few years have a range of strategies at their disposal. Here are some of the most popular first-time homebuyer programs.
Down Payment Assistance
For most people, the down payment will be the largest up-front expense associated with their home purchase. There are certain programs that help alleviate this cost burden. Down payment assistance programs exist to either give or lend the funds a Coloradan might need to cover the down payment. Potential buyers have access to both down payment loans and grants. The most recent type of down payment assistance, the Downpayment Toward Equity Act, provides up to $25,000 in grant money to assist low-income buyers. For those worried about up-front costs, down payment assistance can be a great option.
Government-backed loans are among the most popular assistance programs first-time homebuyers use. These loans are backed and insured by the federal government, which means lenders have fewer restrictions and more generous borrower requirements. There are three government-backed mortgage options: VA loans, FHA loans, and USDA loans. VA loans are only available to qualifying veterans, while FHA loans are designed to support low-income homebuyers. USDA loans, by contrast, are meant to facilitate home purchases in more rural parts of the country. Even though government-backed loans sound different from conventional options, they are functionally similar. The biggest difference? The savings available to the borrower.
First-time homebuyers are encouraged to write off certain homebuying-related expenses on their taxes. This, in turn, lowers taxable income, resulting in fewer taxes paid. The legislation currently making its way through congress is the First-Time Homebuyer Act of 2021, which raises the tax credit from $8,000 to $15,000. While you won’t have those funds on-hand when sitting down at the closing table, a tax break can better facilitate long-term savings and financial planning.
Just as down payment assistance exists, so does closing assistance. Closing costs are an often overlooked but significant cost when purchasing a home. These fees can add up to 3-6% of the home’s value – which can land you in the tens of thousands of dollars in closing fees. Closing assistance is available in the form of grants and loans. It operates similarly to down payment assistance.
Homebuyer education is an accessible form of first-time borrower assistance. Individual states and financial institutions use homebuyer education as an incentive for more favorable interest rates. These programs aim to fill the knowledge gap by providing reduced-cost or free education about the homebuyer process. While not available with every state and bank, this can be a great opportunity for prospective homeowners to educate themselves – and secure a little discount on their impending home purchase.