First-time homebuyers frequently face difficulties, such as finding a suitable property and obtaining a mortgage. Financial assistance programs can help alleviate some of the stress.
Find and compare North Dakota first-time homebuyer programs, such as those for single parents, veterans, people with disabilities and others.
What Is a First-Time Homebuyer Program & How Can It Help?
One of the first steps when buying a home is determining how much money you have for a “down payment,” the cash paid upfront by the buyer in a large purchase such as a real estate transaction. The down payment is a percentage of the total purchase price, and the buyer will usually take out a loan to cover the remainder. A larger down payment will help buyers pay for smaller monthly payments. A 20% down payment is the recommended amount for the average homebuyer.
Homebuyer programs help buyers finance a property. These programs include down payment assistance, government-backed loans and state-specific first-time buyer programs. Buyers can choose the degree of aid they need, ranging from a down payment to a full mortgage. These programs have state-specific offers, which can help all people, including veterans and low-income individuals.
These programs are designed to assist homebuyers in preparing to purchase a home. It makes buying a home a reality for some people who questioned if it was possible.
Zero-Down-Payment Loan Programs
First-time homebuyers can purchase a home with no money down at closing using a zero-down-payment loan program. There are only two government-backed loans that don’t require down payments: USDA loans and VA loans.
Rural homebuyers can save thousands of dollars by taking advantage of USDA home loans. The USDA works with lenders to help qualified low- to moderate-income borrowers own their homes. Individuals may be guaranteed home loans if they meet income requirements and property guidelines.
The USDA offers the following home loan programs in North Dakota:
- The Section 502 Direct Loan Program is for low- and very-low-income applicants.
- The Section 502 Guaranteed Rural Housing Loan is for approved private lenders providing loans to low- to moderate-income applicants.
- The Section 504 Home Repair program is for home repairs, improvements and modernization.
The loan limit set by the USDA varies by household. Primarily, a household of four is capped at $103,500, while a household of five to eight is capped at $136,600.
VA home loans are available to military members, veterans and their spouses. They're issued by private lending institutions but are guaranteed by the U.S. Department of Veterans Affairs (VA).
The various home loans provided by the VA:
- Home purchase loan
- Cash-out refinance loan
- Interest Rate Reduction Refinance Loan (IRRRL)
- Native American Direct Loan (NADL)
These loans can be used to finance various renovations to any existing home or the construction of a new home. Some of the major advantages of this loan include:
- No required down payment.
- Competitive and lower interest rates than other loans.
- The borrower's ability to choose any renovation and receive coverage. This includes roofing, floor repairs and replacement, doors, windows, siding and many other improvements.
Keep in mind that candidates must meet loan eligibility, including credit score, debt-to-income ratio (DTI), property type and loan limit. And interest rates can change daily depending on the current market conditions. Find out more about VA home loan requirements in this MoneyGeek guide.
Low-Down-Payment Loan Programs
Low-down-payment loans allow homebuyers to finance their mortgage costs with less than a 20% down payment. Buyers can opt for these programs through Fannie Mae and Freddie Mac (conventional) and Federal Housing Administration (FHA).
Fannie and Freddie (Conventional) Loans
Many first-time homebuyers prefer Fannie Mae and Freddie Mac loans, or conventional loans, from private lenders as they usually offer lower rates and are more widely accessible.
Conventional loans fall into two main categories:
- Conforming loans adhere to guidelines set by Freddie Mac or Fannie Mae.
- Non-conforming loans exceed conforming loan limits.
To be eligible, the borrower must meet the minimum credit score of 620 for a conforming conventional loan or 700 for a non-conforming conventional mortgage. Meanwhile, your debt-to-income (DTI) ratio must be 45% or lower.
The perks of conventional loans:
Home loans are attainable even for those with unpaid taxes or student loans. Funds can be used on vacation homes or rental properties, unlike federal loans that limit the loan only to owner-occupied property.
Keep in mind that conventional loans require a down payment of 3% to 20%. The rate will depend on a borrower’s financial situation and credit score. Additionally, a down payment of 3% would require purchasing private mortgage insurance (PMI) to protect the lender in case they default on their loan.
An FHA loan is a mortgage insured by the federal government and made by private lenders. They are ideal for people with poor or insufficient credit histories or who want to buy a home but need to make a smaller down payment.
FHA loan requirements are less stringent:
- A minimum credit score of 500
- 3.5% down payment
- Debt-to-income (DTI) ratio greater than 43%
Note that having a credit score over 579 will allow you to put 3.5% down, but a credit score between 500 and 579 will require a down payment of at least 10%.
FHA’s website has an FHA loan calculator that gives borrowers an idea of their maximum loan amount.
Meeting program requirements does not set a person up for guaranteed approval. Fortunately, the lower thresholds offered by the company make it easier for homebuyers with average incomes to qualify.
The FHA 203(k) loan program was created to make it easier for first-time homebuyers to purchase and renovate a property.
It combines a regular mortgage with construction financing that can be used toward renovating or remodeling an existing property. Borrowers may be eligible for lower interest rates and longer repayment terms than traditional mortgages, granted that the home will be their primary residence. This makes it possible for homebuyers to afford a larger home or get more value from their investment in repairs and renovations.
This program is an excellent option for those who want to buy a house that requires improvements and can put in the work to help cut down the overall cost.
Those with credit scores of 500 to 580, a 3.5% down payment and a front-end DTI ratio of 31% and back-end DTI ratio of less than 43% can qualify for an FHA 203(k) loan. It is an FHA-secured loan type, making qualifications more lenient than others.
- The Front-end DTI ratio is the amount of a person’s income that’s dedicated to mortgage payments.
- The Back-end DTI ratio is the amount of a person’s income that’s dedicated to all other monthly expenses.
Keep in mind that the HUD requires properties under this program to meet specific energy efficiency and structural standards.
USDA loans - Great zero-down payment programs for rural residences in an area populated by less than 35,000.
VA loans - Ideal zero down payment assistance for military members, soldiers, veterans and survivors.
Fannie & Freddie loans - Allow borrowers to secure a loan with a down payment of 3%.
FHA loans - Requirements are not as demanding, making them a reasonable for those with poor credit.
FHA 203(k) loans - Lenient and perfect for those who welcome properties that need some work.
North Dakota Homebuyer Programs
First-time homebuyers in North Dakota can make the most of state-specific first-time homebuyer programs.
The North Dakota Housing Finance Agency (NDHFA) offers first-time homebuyers Downpayment and Closing Cost Assistance (DCA). The DCA program provides low-income buyers with affordable mortgage loans, including down payment and closing cost assistance.
The FirstHome program
The FirstHome program is for eligible first-time homebuyers in North Dakota to increase homeownership opportunities for North Dakota residents. It requires borrowers to meet income limits varying per county and household size.
HUD North Dakota Resources
HUB North Dakota Resources provides a list of statewide and regional homeownership assistance programs buyers can apply for, including the Housing Finance Authority and USDA Rural Development.
FAQs for First-Time Homebuyer Programs in North Dakota
MoneyGeek provides answers to frequently asked questions by first-time homebuyers in North Dakota.
- Consumer Financial Protection Bureau. "How to decide how much to spend on your down payment." Accessed September 27, 2022.
- Consumer Financial Protection Bureau. "Conventional loans." Accessed September 27, 2022.
- Federal Housing Financing Agency. "Fannie Mae and Freddie Mac." Accessed September 27, 2022.
- Federal Housing Administration. "FHA Loan Requirements." Accessed September 27, 2022.
- Federal Housing Administration. "FHA Loans for First-Time and Second-Time Home Buyers." Accessed September 27, 2022.
- Office of the Comptroller of the Currency. "Community Developments Fact Sheet: FHA’s 203(k) Loan Program." Accessed September 27, 2022.
- U.S. Department of Agriculture. "Eligibility." 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. "USDA Income Limit Chart." Accessed September 25, 2022.
- U.S. Department of Housing and Urban Development. "Contact Us." Accessed September 27, 2022.
- U.S. Department of Veterans Affairs. "Purchase Loan." Accessed September 27, 2022.
- U.S. Department of Veterans Affairs. "VA Home Loans." Accessed September 27, 2022.