First-Time Homebuyer Programs in Massachusetts

First-time homebuyers generally need financial assistance from the government unless they can afford to pay their mortgage in full. Buying a home can be made more affordable with available programs and financial assistance. MoneyGeek guides first-time homebuyers in Massachusetts so they can find a suitable financial assistance program to help them purchase a home.

Borrowing money to purchase a home can be overwhelming, especially for first-time homebuyers. As this will be one of the biggest purchases you’ll make, it’s important to know all the options available to you.

Having a large down payment upfront will lower both your monthly mortgage payments and overall loan interest. Most lenders require at least 20% of the purchase price as a down payment, but this may not be feasible for many home buyers.

Finding a down payment assistance program is one of the first steps to buying a home, as this will determine how much money you’ll be paying monthly toward your mortgage.

The best homebuyer programs depend on your financial background and needs. Government-backed loans, like USDA and VA, do not require any down payment. Conventional, FHA or FHA 203(k) loans are low-down-payment programs, which require as little as 3.5%. In Massachusetts, you can even find state-wide loan programs.

A zero-down-payment program, such as a USDA or VA loan, does not require the homebuyer to make a down payment when purchasing a home.

USDA loans are offered to low and moderate-income rural Americans, giving them the opportunity to become homeowners through a variety of loan, grant and loan guarantee programs. These types of loans are issued through the Rural Development Guaranteed Housing Loan program of the U.S. Department of Agriculture.

USDA loans often have affordable fixed-interest rates, low origination fees and reduced mortgage insurance prices. Even those with low credit scores might be able to qualify.

However, USDA loans have stricter geographical and property requirements. Some restrictions mandate that your property be located in an eligible low-population rural area and have a market value less than the applicable loan limit.

A VA home loan is issued by private lenders but is guaranteed by the U.S. Department of Veteran Affairs (VA). For that reason, the interest on these loans is often low compared to traditional loans.

Even applicants with low credit scores might be able to get approved easily. However, not everyone can be approved for a VA loan. These are offered only to military service members, veterans and their spouses.

VA loans come in different home loan types, including:

• Home purchase loan
• Cash-out refinance loan
• Interest Rate Reduction Refinance Loan (IRRRL)
• Native American Direct Loan (NADL)

VA loans are often considered a better mortgage option than conventional home loans for those who are eligible, as they have less stringent requirements. For example, future homeowners won’t need to purchase private mortgage insurance. They are also able to take out a loan with no down payment.

Low-down-payment loan programs can help you buy a home with less than 20% down. Conventional and FHA loans are two examples of low-down-payment loans.

Conventional loans are the most common type of financing option for first-time homebuyers. These are widely available and are provided by private mortgage lenders. However, these loans often have stricter requirements than government-backed loans.

There are two types of conventional loans:

• Conforming loans adhere to the guidelines set by Fannie Mae or Freddie Mac.
• Non-conforming loans are the ones that go over the loan limits.

There are conventional loans that you can take out with a 3% down payment, but this will often require private mortgage insurance (PMI) that protects the lender in case you default on your loan. This is an added cost to you on top of your mortgage.

Conforming loans require a minimum credit score of 620, while non-conforming loans require a minimum credit score of 700. Meanwhile, borrowers must have a debt-to-income ratio of 45% or lower to qualify for both loans.

Borrowers who don’t qualify for a private mortgage can consider FHA loans as the next best option. Compared to a conventional loan, FHA loans have more relaxed requirements, including a minimum credit score of at least 580. This would require you to put down 3.5% for your down payment. A credit score of around 500 to 579 may require home buyers to put down 10% of the purchase price. The maximum debt-to-income ratio for these types of loans is 56.9%.

Keep in mind that meeting these restrictions doesn’t necessarily mean you’ll be approved for a loan.

FHA loans are issued by an FHA-approved private lender. These types of loans come in 15 and 30-year terms with a fixed interest rate.

The Department of Housing and Urban Development (HUD) offers an online tool that can help you determine your maximum loan amount.

Similar to an FHA loan, an FHA 203(k) is backed by the Federal Housing Administration. They take the form of a 15- or 30-year term with either a fixed rate (often 1% higher than an FHA) or an adjustable-rate mortgage. It also requires at least a 3.5% down payment and a credit score of at least 500, but some lenders require at least 640.

An FHA 203(k) can be used to fund a home purchase and renovations. It makes much more sense to take out this type of loan when a homebuyer is purchasing an old home with a much lower purchase price that needs major renovations. This is more manageable and cost-effective for homebuyers as it rolls the purchase price or your regular mortgage, with labor and repairs, into one single mortgage.

In an FHA 203(k) loan, there may be restrictions on the kind of property, loan amount and permitted rehabilitation projects.

The Department of Housing and Community Development links to resources on a number of state and federal mortgage products that you can check out when buying a house in Massachusetts for the first time. Some of these products include MassHousing and ONE Mortgage.

MassHousing is a state agency that offers below-market-rate mortgage loans and down payment assistance to first-time homebuyers with moderate income in Massachusetts.

Down payment assistance from MassHousing can reach up to $50,000 if you’re in one of the 28 mid-sized cities like Barnstable, Brockton, Chelsea, Chicopee and more. Mortgage loans feature low, fixed interest rate loans that come with no hidden fees.

ONE Mortgage offers a 30-year term at a low fixed-rate interest loan requiring a 3% down payment for a condo, single-family home and two-family home. Borrowers don’t have to buy private mortgage insurance (PMI), which further helps in lowering monthly payments.

MoneyGeek answers some frequently asked questions for those seeking information about buying a home for the first time in Massachusetts.