First-Time Homebuyer Programs in New Jersey

Buying a house in today’s market can be challenging, especially if it’s your first time. Fortunately, you can take advantage of several financial assistance programs to help you purchase your home.

To help you find one that fits your needs and situation, we broke down various first-time homebuyer programs in New Jersey.

Most people will find it impossible to pay for a house with cash. Luckily, various loan options can help you buy real estate.

Federal homebuyer programs like FHA, USDA and VA loans are available to all U.S. citizens and legal residents, but each program has its qualifications. For example, you can only get a VA loan if you’re an active-duty military personnel, a veteran or a family member thereof.

Note that federal homebuyer programs are open to citizens or legal residents in the U.S. New Jersey first-time homebuyer programs are only available to the state’s residents.

Moreover, you must understand your budget and how much you can pay upfront as a “down payment.” A down payment is the upfront sum paid during a real estate purchase. Most often, it’s 20% of the property’s price, although it can be less, and the remaining amount is settled by getting a loan.

The money you can produce for a down payment affects your mortgage and borrowed amount from a loan provider.

Zero-down-payment loan programs allow qualified buyers to get mortgages without producing upfront cash. USDA and VA loans are government-backed loan programs that don’t require down payments.

USDA home loans are designed to help low-income individuals in rural areas become homeowners. These loans are issued by the U.S. Department of Agriculture and allow qualified borrowers to obtain loans without making a down payment.

There are three home loan programs under the USDA:

• The Section 502 Direct Loan Program offers direct loans to low- and very-low-income applicants.
• The Section 502 Guaranteed Rural Housing Loan assists approved private lenders in providing loans to low- and moderate-income applicants.
• The Section 504 Home Repair program helps homeowners finance home repairs, improvements and modernizations.

To qualify for a USDA loan in New Jersey, you must meet various financial and legal requirements. Notably, your income must be at or below the low-income limit in your area and the property you’re buying must not exceed 2,000 square feet.

In New Jersey, USDA loan limits vary based on your county. For example, the limit in Atlantic County is $336,500, and it’s $776,600 in Hunterdon County.

Note that you can’t get a USDA loan in Bergen, Essex, Hudson and Union counties. You can use USDA’s property eligibility tool to determine if you're eligible to receive a USDA loan based on your area.

VA home loans help active military members, veterans and eligible surviving spouses become homeowners. Although private lenders issue them, they are backed by the U.S. Department of Veteran Affairs, which results in more favorable terms.

Qualified borrowers can enjoy the following benefits which come with VA home loans:

• No down payment required
• Low closing costs
• No private mortgage insurance (PMI) required
• Lower interest rates compared to conventional loans
• Lifetime warranty, meaning it can be used multiple times

A service member’s length of service, duty status and service character determine if they qualify for a VA home loan. Beyond having satisfactory credit and enough income, borrowers must obtain a Certificate of Eligibility (COE) before getting a loan.

You can use a VA home loan to purchase a house, obtain a lower interest rate through refinancing, avoid foreclosure and other purposes.

With low-down-payment loans, you can buy a house with less than the usual 20% down payment. Two home loans with low-down-payment options are conventional and FHA loans.

Conventional home loans are privately-issued mortgages. Most first-time homebuyers tend to get such loans due to their low rates and wide availability.

Conventional loans are great ways to access low-down-payment options if you're ineligible for government-backed home loans. Mortgages usually feature a 20% down payment, but it’s possible to find conventional loans with the option to commit a lower down payment.

Generally, conventional home loans fall into two categories:

• Conforming loans that follow Fannie Mae and Freddie Mac’s guidelines on loan size, debt-to-income ratio (DTI), credit scores and property standards.
• Non-conforming loans that exceed the above guidelines.

However, because the government does not back conventional home loans, they usually have stricter lending requirements.

Notably, you must have a credit score of at least 620 and a DTI of 45% or lower to qualify. You’re also required to get a PMI for your loan.

FHA loans originate from private companies but are insured by the Federal Housing Administration (FHA). Due to the FHA’s insurance, loans have fewer restrictions, allowing more individuals to get loans.

You can qualify for an FHA loan with a credit score of at least 500, a DTI of 56.9% and a minimum down payment of 3.5%. In addition, you can get an FHA loan with a fixed interest rate and a loan term of 15 or 30 years.

The amount you can get with an FHA loan varies based on location and preferred unit. You can use FHA’s mortgage limit tool to determine how much you can borrow based on your area.

FHA loans come with several benefits, but they also have some drawbacks.

For one, they have high mortgage insurance costs, which include an upfront fee of 1.75%. Financing through FHA may be more challenging if you're buying a condo.

If you’re looking to buy an older home, an FHA 203(k) loan can be a great option. It combines a standard mortgage and a construction loan into one loan product, allowing you to finance the property's purchase and rehabilitation.

You can choose between two types of FHA 203(k) loans:

• Standard: This is intended for borrowers buying homes requiring extensive repairs and structural work. If your prospective home needs a new roof, plumbing system or room, this kind of FHA 203(k) loan will work best for you.
• Streamlined: Also known as limited 203(k) loans, this type of loan is for houses that only need cosmetic and minor repairs that don’t exceed 5,000.

To qualify for an FHA 203(K) loan, you’ll need a 500–580 credit score, a 3.5% down payment, a front-end DTI of 31% or less and a back-end DTI of 43% or less.

Moreover, the value of the property you’re buying must fall within the FHA’s mortgage limit for the area, which varies based on the location and home type.

Beyond federal loans, you can take advantage of first-time homebuyer programs in New Jersey to help you buy your dream house.

If you’re a first-time homebuyer in New Jersey, you may qualify for a competitive, 30-year and fixed-rate loan that’s insured by the government and originated through a New Jersey Housing and Mortgage Finance Agency (NJHMFA) lender.

You may get $10,000 for your down payment and closing costs if you’re a first-time homebuyer in New Jersey. This down payment assistance program is a five-year second loan that’s interest-free, forgivable and doesn’t require a monthly payment.

Qualified low- and moderate-income first-time homebuyers in Trenton, New Jersey, can get closing cost assistance from the city. The amount you may get is based on your household income, assets, homeowner history, mortgage terms and other criteria.

If you’re looking for first-time homebuyer programs in New Jersey, MoneyGeek responded to some commonly asked questions to help you in your journey to being a homeowner.