Buying a home requires finding the perfect property, filling out a mortgage application and figuring out the finances. That’s why first-time homebuyers might find the process challenging.
MoneyGeek’s analysis of Maryland first-time homebuyer programs can help potential homeowners choose the best option based on their situation.
What Is a First-Time Homebuyer Program & How Can It Help?
When buying a home with a mortgage, you will have to consider how much down payment you will pay upfront. A down payment is a sum of money that's part of a home's total cost and is the borrower's responsibility.
Putting a down payment on a home loan is essential to the process, as it can impact your interest rate and monthly costs. It is usually 20% of the home’s purchase price. However, some homebuyers cannot afford a larger down payment.
Many federal and state homebuyer programs are available in Maryland to help such borrowers. You can opt for zero-down-payment programs like USDA and VA loans or low-down-payment programs like conventional, FHA and FHA 203(k) loans.
Maryland residents can also benefit from state programs such as the Housing Choice Voucher Homeownership Program and the Maryland Mortgage Program.
It's best to understand the eligibility requirements of federal and state first-time homebuyer programs. Before applying, you should analyze your needs and determine which option best fits your situation.
Zero-Down-Payment Loan Programs
Zero-down-payment loan programs significantly benefit first-time homebuyers who cannot make a down payment. Such borrowers may apply for USDA or VA loans.
The U.S. Department of Agriculture issues a USDA loan to its borrowers. It is ideal for low- to moderate-income borrowers looking to purchase a home and settle in rural areas.
A USDA home loan does not require a down payment, making it different from an FHA and conventional loan. Additionally, this mortgage option does not require a high credit score. However, choosing a property in a USDA-approved rural region is mandatory.
To qualify for a USDA loan, you must be a U.S. national or resident and intend to use the property as your primary residence. It's also crucial that you meet the minimum income requirements.
Eligible property must be in a rural region with a population below 35,000 and less than 2,000 square feet.
Veterans, serving military members and spouses of military officers can take advantage of VA loans to purchase a home. Although the U.S. Department of Veterans Affairs guarantees VA loans, private lenders like banks and mortgage companies issue them.
With VA loans, homebuyers tend to lock in lower interest rates and do not have to meet the standard loan requirements. Keep in mind that you don't have to purchase private mortgage insurance (PMI) or put a down payment.
Before applying for a loan, you should get a certificate of eligibility from the VA since lenders will require it. You can obtain this certificate from the VA website, where you will have to provide various service documents.
VA-backed loans have drawbacks too. For example, lenders expect you to pay an upfront funding fee as a closing cost. To qualify for a loan, borrowers must resolve their federal debt.
Low-Down-Payment Loan Programs
Several low-down-payment loan programs are available for homebuyers who can't afford a 20% down payment. Mortgage options with low down payment include conventional, FHA and FHA 203(k) loans.
Fannie and Freddie (Conventional) Loans
Private mortgage lenders issue conventional loans to homebuyers. These loans are also called Fannie Mae and Freddie Mac — the home mortgage companies formed by the U.S. Congress.
A conventional mortgage conforms to the income and down payment requirements of Fannie Mae or Freddie Mac. Many non-conforming loans are also available. Some examples are jumbo loans and portfolio loans.
You might be able to get a conventional loan by putting in a 3% down payment. However, lenders will require you to purchase private mortgage insurance, which protects them in the event of default. You can cancel PMI once your principal loan balance is 78% of the property's value.
Regarding the credit score requirements, homebuyers must have a 620 credit score. However, it's not a guarantee that you will qualify since requirements vary per lender.
Before applying for a conventional loan, it's best to compare the cost to other government-backed mortgages. Analyze the rates and decide if it suits you best based on your needs.
Opting for FHA loans is excellent if you want to purchase a home through a government-backed mortgage. The Federal Housing Administration (FHA) insures these home loans, and private lenders offer them to homebuyers.
To qualify for an FHA loan, you must have a minimum credit score of 500, a minimum debt-to-income ratio of 56.9% and a minimum down payment of 3.5% on your home loan.
For repayment terms, borrowers can choose between paying off the mortgage in 15 or 30 years. FHA loans have a fixed interest rate and the maximum loan amount can vary based on the location.
MoneyGeek further explained how FHA loans work, eligibility requirements and other vital details to help determine if it's the best option for your needs.
The FHA 203(k) loan assists homebuyers interested in financing the purchase and renovation of a damaged home through a mortgage. You can also use this loan to refinance an existing mortgage. The FHA 203(k) loan has less strict eligibility requirements than conventional loans.
Below are the two types of FHA 203(k) loans.
- Standard 203(k) loan: You can use this loan to finance major home repairs, including structural work.
- Streamlined 203(k) loan: This is best for funding minor repairs like new flooring or minor room remodeling.
FHA 203(k) loans have competitive interest rates, low down payment and credit score requirements. However, you must make upfront and monthly mortgage insurance payments with these loans. You will also go through an extensive application process.
USDA loans: Homebuyers enthusiastic about settling down in rural regions can benefit from low-interest rates and no down payment.
VA loans: A VA loan is ideal for veterans and homebuyers with a military background. They do not require a down payment or PMI.
Fannie & Freddie loans: The most popular mortgage loan option in the nation. Homebuyers can make a down payment of as low as 3.5%.
FHA loans: These loans might best suit you if you have a bad credit history. However, you must obtain private mortgage insurance.
FHA 203(k) loans: It's best to opt for an FHA 203(k) loan if you want to finance the purchase and renovation of an older home.
Maryland Homebuyer Programs
To help make the homeownership journey easier, residents may consider the various first-time homebuyer programs in Maryland.
Housing Choice Voucher Homeownership Program
The federal government funds the Housing Choice Voucher Homeownership Program. However, the program is administered locally. You must have one year of full-time employment experience and meet the income and other requirements to qualify.
Maryland Mortgage Program
The Maryland Mortgage Program (MMP) offers various homeownership programs for first-time homebuyers. The programs include MMP 1st Time Advantage, MMP Flex Loans, Partner Match and Specialty Loans.
HUD resources MD
The U.S. Department of Housing and Urban Development has listed different resources for homeownership assistance in Maryland. These include down payment and closing cost assistance through the Maryland Department of Housing and Community Development and the Habitat for Humanity program.
FAQs for First-Time Homebuyers in Maryland
MoneyGeek responded to frequently asked questions about Maryland first-time homebuyer programs to help you make an informed decision.
- Housing Authority of Baltimore City. "Homeownership Program." Accessed September 27, 2022.
- Maryland.gov. "Maryland Mortgage Program." Accessed September 27, 2022.
- U.S. Department of Agriculture. "Single Family Housing Guaranteed Loan Program." Accessed September 27, 2022.
- U.S. Department of Agriculture. "Eligibility." Accessed September 27, 2022.
- U.S. Department of Housing and Urban Development. "Homeownership Assistance: Maryland." Accessed September 27, 2022.
- U.S. Department of Veterans Affairs. "VA Home Loans." Accessed September 27, 2022.