Finding a mortgage lender and a manageable repayment period is one of the first steps in a homeownership process. Mortgage lenders often require at least a 20% down payment to get started. However, this can be hard to come up with for low-income earners.
MoneyGeek helps shoppers find government-backed programs that lower these down payment requirements.
What Is a First-Time Homebuyer Program & How Can It Help?
Buying a home for the first time requires understanding a mortgage, repayment period, interest and your different financing options. Unless you plan to pay for a property in full in cash, you'll need to find a home lending program that suits your budget and financial situation.
A larger down payment will reduce your monthly mortgage and overall loan interest. Most lenders require a down payment of at least 20% of the home's purchase price, which may be out of reach for many buyers.
In Pennsylvania, federal homebuyer programs like USDA and VA loans require no down payment. Conventional, FHA and FHA 203(k) loans are ideal for those who can afford at least a 3.5% to 10% down payment. You can also access state-specific homebuyer programs like First-Time Home Buyer Program.
Zero-Down-Payment Loan Programs
Government-backed programs like USDA and VA loans make the dream of owning a home more manageable. Through this financing assistance, low-income families can purchase a home without having to cash out money upfront as a down payment.
The U.S. Department of Agriculture offers USDA loans to borrowers to encourage rural development. These mortgages assist low- to moderate-income families with 100% financing assistance if they buy a home in an eligible rural area.
USDA home loans have affordable fixed-interest rates, low origination fees and reduced mortgage insurance prices. USDA has a certain income requirement for a single-family housing guaranteed loan program that cannot exceed 115% of the median household income. For example, the income threshold for a family of four in Harrisburg–Carlisle is $75,450.
Under this loan program, you can purchase a new or existing residential property as your primary residence. There are no credit card requirements or acreage limits for these types of loans.
The U.S. Department of Veteran Affairs guarantees 100% financing through VA home loans. However, these are only accessible to service members, veterans and their spouses.
VA mortgages are of different loan types, including:
Home purchase loan Cash-out refinance loan Interest Rate Reduction Refinance Loan (IRRRL) Native American Direct Loan (NADL)
A VA home loan has a less stringent requirement than a traditional mortgage. For example, there are no credit scores or income requirements. Borrowers are also not required to get private mortgage insurance (PMI). However, they may need to pay a one-time funding fee. Applicants with existing defaults on federal debt may not get qualified.
Low-Down-Payment Loan Programs
Conventional loans, FHA loans and FHA 203(k) loans are other financial assistance programs for borrowers with income above the low-income threshold. These types of mortgages require around 3.5% to 10%, depending on the borrower's eligibility.
Fannie and Freddie (Conventional) Loans
Conventional loans issued by private mortgage lenders are the most widely available loan program for most first-time homebuyers. In addition to your monthly mortgage payments, you also need to get private mortgage insurance.
Conventional loans are in the following categories:
- Conforming loans that adhere to Fannie Mae or Freddie Mac guidelines.
- Non-conforming loans are those that exceed loan limits.
Because they are not government-backed, conventional loan requirements are often stricter. You must meet certain minimum requirements if you're applying for conventional mortgages.
For instance, a conforming loan requires at least a 620 credit score, whereas non-conforming loans require a credit score of 700. For both loans, you need to have a 45% or lower debt-to-income ratio to qualify.
FHA loans are issued by private lenders and insured by the Federal Housing Administration.
Compared to traditional loans, FHA loan requirements are much easier to meet. For instance, you only need at least 580 with a 3.5% down payment. A credit score of around 500 requires at least a 10% down payment.
Borrowers can choose between the 15- or 30-year fixed-rate mortgage terms, with a maximum loan amount based on their county.
An FHA 203(k) loan has a fixed-rate or adjustable-rate mortgage with repayment terms of 15 or 30 years. Borrowers need a credit score of at least 500 to secure a loan with a 3.5% down payment.
Borrowers prefer an FHA 203(k) loan if they plan to purchase a home that will need some modifications or significant renovations. Since it may cost a lot to renovate, this loan helps borrowers roll the total purchase price with the cost of renovations into a single mortgage.
USDA loans: These government-backed loans require no down payment if you're buying a property in a rural area.
VA loans: For eligible military members and veterans who plan to take out a loan for a primary residence.
Conventional loans: You can obtain this mortgage with as little as 3% down.
FHA loans: Have lower eligibility requirements like a lower credit score, debt-to-income ratio and down payment.
FHA 203(k) loans: You can finance repairs and improvements to a fixer-upper you just purchased and roll this into one mortgage payment.
Pennsylvania Homebuyer Programs
Pennsylvania first-time homebuyers can explore several options for loan programs specific to the state. These include the First-Time Home Buyer Program and PHFA Loan.
First-Time Home Buyer Program
The The First-Time Home Buyer Program offers homebuyers in Centre County up to $10,000 or 10% of the purchase price (whichever is lower) as a loan. You should be a first-time home buyer and not have owned a home in the last three years.
PHFA Home Loan
The PHFA Home Loan, from the Pennsylvania Housing Finance Agency, requires borrowers to have at least a 680 credit score. Applicants also have to complete an in-person course before closing the loan, which will determine whether they are financially ready for a first residential purchase or not.
PHFA loans have competitive interest rates on a 30-year repayment term and incur fewer fees. However, expect to pay closing cost assistance in addition to your down payment. You can use a PHFA loan with either conventional, FHA or VA loan types.
FAQs for First-Time Homebuyer Programs in Pennsylvania
MoneyGeek answered commonly asked questions to help you learn more about first-time homebuyer programs in Pennsylvania.
- Centre County Pennsylvania. "First Time Home Buyer Program." 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 Veterans Affairs. "VA Guaranteed Loan." Accessed September 28, 2022.
- U.S. Department of Veterans Affairs. "VA Home Loan Guaranty Buyer's Guide." Accessed September 28, 2022.