First-Time Homebuyer Programs in Alaska

Working toward owning a home can be a big hurdle for first-timers. If you’re looking to buy a home in Alaska, consider using a first-time homebuyer program.

MoneyGeek dives into zero-down-payment, low-down-payment and Alaska-specific homebuyer loan programs so you can determine the best option based on your needs and budget.

Before you even purchase a home, it’s wise to look at the expenses you need to anticipate. One of the largest costs you need to consider is your mortgage down payment.

A mortgage down payment is an important aspect of the homebuying process, especially since it can affect your monthly expenses. For example, having a higher down payment upfront can lower your monthly payments since you’ll pay less interest.

The down payment is usually 20% of your home’s total cost, which can be a bit expensive for some. Hence, homebuyer assistance programs are worth looking into if you need a more affordable rate.

Generally, there are zero-down-payment programs (USDA and VA loans) and low-down-payment programs (conventional, FHA and FHA 203(k) loans). Alaska has several statewide loan programs, including the Closing Cost Assistance loan program.

While there are many options, the best homebuyer program for you depends on your financial background and needs. For example, a government-backed loan doesn’t typically require homebuyers to have a down payment.

With a zero-down-payment loan program, homebuyers aren’t required to submit a down payment when purchasing a home. Two common types of zero-down loans are USDA and VA loans.

A USDA loan is a suitable mortgage option for individuals who live in eligible rural areas. Homebuyers can get USDA loans through the U.S. Department of Agriculture and its Rural Development Guaranteed Housing Loan program.

USDA loans are generally more affordable than FHA or conventional loans. Homebuyers can borrow a maximum of $40,000 to repair, improve and remove safety hazards on their property.

Alaska homebuyers might qualify if they meet the income eligibility requirements and live in the home as their primary residence. Additionally, their property must be 2,000 square feet or less and within a rural area with a population below 35,000.

USDA loans have a fixed rate of 1% and a 20-year repayment period. A couple of advantages of a USDA loan are that it has a low origination fee (2% of the loan amount), and homebuyers don’t need to worry about a down payment.

A VA loan is a great option for military personnel, veterans and their families. The U.S. Department of Veterans Affairs issues VA loans to assist eligible homebuyers who are working toward homeownership. Unlike most other loans, you don’t need to have a down payment with a VA loan.

Interested homebuyers may qualify if they meet minimum requirements regarding their property, credit score and income. Depending on what you need, you can purchase a single-family home or condominium, or you can build a new home with a VA loan. Alternatively, you can buy a home and improve it (for instance, make it more energy efficient).

VA loans offer several benefits, including lower closing costs, reasonable terms and rates, no early prepayment penalty fee and no private mortgage insurance (PMI) requirement. However, you’ll need to pay a one-time VA funding fee when you get a VA loan.

Another option available to Alaskan homebuyers is a low-down-payment loan program which allows you to purchase homes with less than a 20% down payment. You can choose a conventional Fannie or Freddie loan or an FHA loan.

Fannie and Freddie loans, also known as conventional loans, are private mortgages that are not government-backed. Conventional loans are widely available, and their requirements vary per lender.

A Fannie or Freddie loan is ideal for homebuyers who aren’t able to fulfill federal obligations (such as student loans and taxes), which usually make them ineligible for government-backed mortgages.

Although the expected down payment for a mortgage is typically 20%, some lenders will allow you to get a mortgage even with a 3% down payment. The lower rate allows more individuals to start their journey toward homeownership.

General requirements to qualify for a conventional loan are a 620 credit score and a 45% debt-to-income ratio. However, not all lenders strictly follow these terms, so it’s best to shop around for a suitable lender.

Private lenders offer FHA loans, a type of low-down-payment mortgage that follows Federal Housing Administration (FHA) guidelines and policies. FHA loans are an excellent option for those with damaged or incomplete credit histories.

An FHA loan has more relaxed requirements, such as a minimum credit score of 500, a maximum 56.9% debt-to-income ratio and a minimum 3.5% down payment. This loan type also has a fixed interest rate and a 15- or 30-year repayment term.

However, loan limits vary depending on the county and state in which you live. With FHA loans, Alaska homebuyers have a mortgage limit of up to approximately $420K for a single-family property.

A downside of FHA loans is that they demand more paperwork, and not all condominiums are eligible. Additionally, FHA loans come with multiple costs — borrowers need to pay a fee equivalent to 1.75% of the loan amount upfront.

An FHA 203(k) loan is a standard mortgage and construction loan rolled into one. This can be a great option for homebuyers who want to purchase an older home and renovate it.

There are two types of FHA 203(k) loans: standard and limited. The standard 203(k) is best for homebuyers who need to significantly repair and improve their homes by replacing plumbing, for example. On the other hand, the limited 203(k), also known as the simplified or streamlined 203(k) loan, is for homebuyers who need simple renovations, including minor kitchen remodeling.

To be eligible for an FHA 203(k) loan, you usually need to have a credit score of 500–580, a 3.5% down payment and a front-end debt-to-income ratio of 31% or less. FHA 203(k) loans can only be used for homes that will be a homebuyer’s primary residence.

While there are federal loan programs available to Alaska homebuyers, there are also programs unique to the state and its residents.

The Alaska Housing Finance Corporation (AHFC) offers closing assistance at a 30-year fixed interest rate for FHA, VA and USDA loans. Homebuyers with a minimum credit score of 640 can get up to 4% of the mortgage loan’s principal balance.

To qualify, homebuyers must be active Habitat for Humanity participants, have a low-to-moderate income and be willing to pay a mortgage that won’t go beyond 30% of the homebuyer’s gross monthly income.

The Cook Inlet Lending Center offers several loan programs, including a down payment assistance loan program which has a 4% fixed interest rate and 30-year repayment term.

The Section 184 program is designed for American Indian and Alaska natives, villages and tribes who want to be homeowners in the state. Indian Housing Authorities, tribally designated housing entities and federally recognized Indian tribes are eligible for this program.

The Rural Alaska Community Action Program, Inc., also known as RurAL CAP, provides multiple housing programs for Alaska residents. One of its programs is Mutual Self-Help Housing, in which participants build one another’s homes for up to 65% of the house’s total labor.

NeighborWorks Alaska offers two kinds of home loans: down payment assistance and the ReNEWvation loan program. The former bridges the difference between your budget and the cost of housing, while the latter is meant for residents looking to improve their homes.

Buying a home for the first time can be overwhelming. MoneyGeek answered a few commonly asked questions to help first-time homebuyers get started.