Becoming a homeowner is not always a walk in the park, especially for first-time buyers. However, there are ways to get financial assistance to make it easier. MoneyGeek's comprehensive guide to Maine first-time homebuyer programs can help you find the option that's right for you.
What Is a First-Time Homebuyer Program & How Can It Help?
The down payment you want to make when buying a home is something that needs to be carefully considered. Your eligibility for a certain mortgage and loan amount is contingent on the size of your down payment. A larger down payment results in lower monthly payments, and vice versa. First-time homebuyer assistance programs can help with the new homebuyer's down payment and closing costs, as well as help them get competitive rates on a loan.
For first-time buyers, the rising cost of living might make it difficult to put together a sizable down payment. However, a first-time buyer's options for securing home financing are not limited. Some of the choices that can help individuals own their dream house include government-backed loans, state-run programs and down payment assistance programs.
Thanks to federal and state homebuyer aid programs, you'll be able to purchase the home of your dreams in Maine. Federal homebuyer programs are open to U.S. citizens and lawful permanent residents. However, these loans are subject to additional restrictions, and only military personnel are qualified to get VA loans.
The state of Maine offers many homebuyer assistance programs to help first-time homebuyers purchase a house.
Zero-Down-Payment Loan Programs
Loan programs that require no down payment enable first-time homebuyers to get a loan without paying any money upfront. There are only two government-backed loan programs that do not need a down payment, including the USDA loan and the VA loan.
The United States Department of Agriculture (USDA) home loans are offered to rural borrowers with low to moderate incomes. The good news is that there is no minimum credit score or down payment required to qualify for their low interest rates.
The three USDA home loan programs are as follows:
- The Section 502 Direct Loan Program: Individuals with low and very low incomes may be eligible for direct loans.
- The Section 502 Guaranteed Loan Program: Loans for low- and moderate-income buyers from authorized loan providers.
- The Section 504 Home Repair Program: Aids homeowners with the cost of home renovations, repairs and upgrades.
Each county or state where USDA loans are offered imposes income limits. There are also property requirements to qualify, such as having a potential home with less than 2,000 square feet and it being in a rural area with fewer than 35,000 residents.
Veterans Affairs (VA) home loans, which are backed by the U.S. Department of Veterans Affairs, are provided by banks and other private lenders. However, these loans are restricted to active-duty military personnel, veterans who are discharged honorably and their eligible surviving spouses.
VA home loans offer attractive benefits to eligible borrowers, making them a viable alternative to conventional loans. There is no minimum credit score or down payment needed, and there is also no loan cap. Additionally, VA loans don't require private mortgage insurance (PMI) and have low interest rates and closing costs.
The VA provides the following loan types:
- Home purchase loan
- Cash-out refinance loan
- Interest Rate Reduction Refinance Loan (IRRRL)
- Native American Direct Loan (NADL)
Your service history, length of service, service characterization and duty status all impact your eligibility for a VA loan. Additional requirements include a Certificate of Eligibility (COE), proof of income and an acceptable credit score.
Low-Down-Payment Loan Programs
Homebuyers who only have enough money for a down payment of less than 20% might want to look into low-down-payment loans, such as an FHA loan or a conventional loan.
Fannie and Freddie (Conventional) Loans
First-time homebuyers often use conventional loans to finance home purchases. They are easier to get and have lower interest rates even though they are funded by private lenders. However, these loans come with stricter prerequisites than government-backed loans, making them more difficult to acquire.
Conventional loans are classified into two types:
- Conforming loans that meet Fannie Mae or Freddie Mac regulations
- Non-conforming loans exceed the limitations placed by conforming loans
Even with a 3% down payment, you might be able to get a conventional loan. All that is required to protect the lender from a default-related loss is the purchase of private mortgage insurance (PMI).
A credit score of 620 is required for a conforming loan, while a higher score of 700 is needed if you want a non-conforming loan. Your debt-to-income ratio (DTI) should never be more than 45%.
Government-backed loans from the Federal Housing Administration (FHA) are provided by private lenders. You may purchase a home with an FHA loan even if you have a credit score of 500, a 59% debt-to-income ratio and just a 3.5% down payment.
However, meeting the FHA's less strict conditions does not guarantee you’ll receive a loan. A 3.5% down payment is only available to those with credit scores of 580 or better. A 10% down payment can be required if your credit score falls between 500 and 579.
Although state and county-specific loan limits apply, there is only a choice of a 15 or 30-year fixed-rate loan for FHA loan applicants. You can try the tool available on the Department of Housing and Urban Development's (HUD) website to estimate the largest loan amount you might be able to get.
Helping buyers of homes in need of repair is the goal of the FHA 203(k) loan program. Loans can be obtained through the program to assist buyers in covering the costs of buying and repairing a home.
Renovating projects, such as those involving structural changes or reconstruction, the removal of health and safety risks or the repair or reconditioning of plumbing systems, can all be financed under the Federal Housing Administration's FHA 203(k) loan.
However, note that properties participating in this program must meet the HUD's fundamental structural standards and energy efficiency requirements.
The requirements for getting an FHA 203(k) loan are the same as those for getting an FHA loan. If you have a credit score of at least 580, you may only have to put down 3.5%. Otherwise, if your score is between 500 and 579, a downpayment of 10% might be required.
USDA loans: If you want to get a USDA loan, the house you want to buy must be 2,000 square feet or less.
VA loans: Only military members (active-duty, honorably-discharged veterans and eligible spouses) qualify for VA loans.
Fannie & Freddie loans: Commonly known as conventional loans, a 3% down payment is all that is required to qualify.
FHA loans: FHA loans have some of the less stringent terms when it comes to credit score, debt-to-income ratio and down payment.
FHA 203(k) loans: Fixer-uppers can be repaired and upgraded with the help of an FHA 203(k) loan.
Maine Homebuyer Programs
Beyond government-backed loans, residents of Maine are also eligible for a number of programs aimed at facilitating homeownership.
First Home Loan Program
The First Home Loan Program from MaineHousing provides qualified borrowers with loans the option to put down little or nothing for a down payment at relatively low fixed interest rates. Along with financing options for mobile homes, it also provides closing cost assistance of up to $5,000.
HUD Maine Resources
Numerous programs are available from the Department of Housing and Urban Development to assist first-time homebuyers in the state of Maine. These include programs offered through hoMEworks, Habitat for Humanity and the U.S. Department of Agriculture Rural Housing.
FAQs for First-Time Homebuyers in Maine
MoneyGeek provided responses to some of the most frequently asked questions concerning first-time homebuyer programs in Maine that might help you get a home of your own.
- Maine Housing. "First Home Loan Program." Accessed September 27, 2022.
- U.S. Department of Agriculture. "Single Family Housing Direct Home Loans." Accessed September 27, 2022.
- U.S. Department of Agriculture. "Single Family Housing Guaranteed Loan Program." Accessed September 27, 2022.
- U.S. Department of Agriculture. "Single Family Housing Repair Loans & Grants." Accessed September 27, 2022.
- U.S. Department of Agriculture. "Rural Development Single Family Housing Direct Loan Program." Accessed September 27, 2022.
- U.S. Department of Housing and Urban Development. "203(k) Rehab Mortgage Insurance." Accessed September 27, 2022.
- U.S. Department of Housing and Urban Development. "FHA Mortgage Limits." Accessed September 27, 2022.
- U.S. Department of Housing and Urban Development. "Homeownership Assistance: Maine." Accessed September 27, 2022.
- U.S. Department of Veterans Affairs. "VA Home Loans." Accessed September 27, 2022.