The homebuying process might seem overwhelming to first-time homebuyers in Vermont. To simplify it, MoneyGeek researched several financing options, including zero-down-payment loan programs, low-down-payment loan programs and state programs. This guide can help you find the ideal option based on your needs.
What Is a First-Time Homebuyer Program & How Can It Help?
As a first-time homebuyer in Vermont, figuring out how you will finance the purchase of a new home is an essential part of buying a home. The most significant aspect of a mortgage is the down payment. It's a percentage of the home's total price that you will pay upfront.
Although the down payment is usually 20%, you can get a lower interest rate and a lower monthly payment if you put in a larger down payment. Several first-time homebuyer programs are available to help you if you can't afford to pay a down payment.
These programs are offered at the federal and state level. However, it's important to know the eligibility requirements of these programs, as some federal loans aren't available for everyone. For instance, USDA loans are only available for homes located in some rural regions.
Homebuyers can also get assistance from several state programs through the Vermont Housing Finance Agency. These programs can make buying a home for the first time in Vermont more feasible.
Zero-Down-Payment Loan Programs
First-time homebuyers who can’t afford a down payment can benefit from zero-down-payment loan programs like USDA and VA loans. However, you need to fulfill special requirements to qualify for these loans.
If you’re looking to buy a home in a rural region, you can benefit significantly from USDA loans. The U.S. Department of Agriculture offers these loans and issues them through the Rural Development Guaranteed Housing Loan program.
A USDA loan has many advantages, including no down payment, low interest rates and low origination fees. You can still qualify for these loans even if you have a bad credit history.
Loan offerings include:
- Single-Family Housing Direct Home Loans
- Section 502 Guaranteed Rural Housing Loan
- Section 504 Home Repair Program
Homebuyers must meet the eligibility requirements to qualify for a USDA loan. For instance, the homebuyer should be a U.S. citizen or permanent resident and intend to occupy the home as their primary residence.
Also, the home must be located in a rural region with less than 35,000 residents. It should be 2,000 square feet or less and can’t contain an in-ground swimming pool.
VA home loans make homeownership easy for first-time homebuyers with a military background. These loans do not have traditional requirements, offer a lower interest rate and do not require private mortgage insurance (PMI) or a down payment.
Although private lenders like banks and mortgage companies provide VA loans, they are guaranteed by the U.S. Department of Veterans Affairs. You can use a VA loan for a first or second mortgage on a primary residence, refinancing, construction and more.
You won’t have to pay for PMI with a VA loan. However, the lenders will require you to pay a one-time funding fee and closing costs.
To be eligible for VA loans, current military members must have either:
- 90 days of active service during wartime
- 181 days of active service during peacetime
- More than six years of service with the National Guard
- Have served for 90 days under title 32
Low-Down-Payment Loan Programs
If you can’t afford a 20% down payment, opting for a low-down-payment loan is also a great option. Conventional loans and FHA loans are examples of low-down-payment programs.
Fannie and Freddie (Conventional) Loans
When it comes to mortgages, conventional loans are one of the most popular choices. These loans are backed by private mortgage lenders instead of a government agency.
Conforming conventional loans adhere to the guidelines set by Fannie Mae and Freddie Mac, the home financing corporations established by the government. These loans may have lower costs, higher loan limits and more flexibility.
You might be able to get approval for a conventional loan even if your credit score is as low as 620. However, some lenders may require a higher score.
Many lenders will allow you to get a loan with a 3% down payment. However, they will require you to purchase private mortgage insurance (PMI) if your down payment is less than 20%. Typically, you will repay this loan over a 30-year term.
In addition, non-conforming loans go over the loan limits. You need at least a 700 minimum credit score to qualify for these.
Vermont residents looking for a mortgage for homeownership can benefit from FHA loans. Although private lenders offer these loans, the Federal Housing Administration (FHA) insures them.
The minimum eligibility requirements for an FHA loan are having at least a credit score of 580 and a down payment of 3.5%. You can also have a credit score of 500 to 579 if you put down 10%. However, it isn’t guaranteed that you’ll get the loan even if you meet these requirements.
Most homebuyers opt for FHA loans because they don’t have a high credit score requirement. However, you must purchase mortgage insurance with all FHA loans.
Homebuyers will have to make two payments for mortgage insurance. The first payment will be upfront at the closing of the loan, and the other payment will be made annually during the life of the loan.
Keep in mind that FHA loans generally involve more paperwork.
First-time homebuyers interested in purchasing an older home and renovating it using a mortgage can get an FHA 203(k) loan. Similar to an FHA loan, the eligibility requirements of an FHA 203(k) loan are also lower than conventional loans.
There are two types of FHA 203(k) loans: standard and streamlined. Both types differ in loan amounts, eligibility requirements, repayment terms and more.
You can generally use a standard 203(k) loan to fund significant repairs, like plumbing replacement or changing your home’s roofing system. On the other hand, the streamlined 203(k) loan can finance minor renovations. Some examples include gutter repair, new flooring and more.
However, FHA 203(k) loans also involve paying mortgage insurance premiums and have a lengthy application process. After you apply, it takes a long time to receive a response from the FHA and the lender.
USDA loans: Best for homebuyers looking to settle in rural regions as they have low interest rates and don't require a down payment.
VA loans: Veterans, active-duty military members and spouses of military officers can use VA loans to purchase a home.
Fannie & Freddie loans: These loans do not require a large down payment, but you will have to get PMI if you put down less than 20%.
FHA loans: Suitable option for homebuyers with a low credit score, but these loans require mortgage insurance.
FHA 203(k) loans: These loans help homebuyers purchase an older home and renovate it.
Vermont Homebuyer Programs
Besides federal programs, homebuyers can also benefit from first-time homebuyer programs in Vermont. These programs are only available to residents of the state.
ASSIST Down Payment and Closing Cost Assistance
The Vermont Housing Finance Agency's ASSIST program lets homebuyers borrow up to $15,000, charges no interest and has no monthly payments. Borrowers will pay the loan when they sell the house, refinance it or pay off the mortgage.
The MOVE program provides the lowest interest rates and offers a 30-year fixed-rate mortgage loan. It helps homebuyers save up to $825 on Vermont property transfer tax at the loan's closing.
Besides helping homebuyers save money on Vermont Property Transfer Tax, the MOVE MCC program also offers up to $2,000 with the Mortgage Credit Certificate (MCC) as an annual federal tax credit.
The ADVANTAGE programs offer a 30-year fixed-rate mortgage loan and allow a 0% to 5% down payment, depending on the lender. The down payment and closing cost assistance are also available.
FAQs for First-Time Homebuyer Programs in Vermont
If you still have questions about buying a home for the first time in Vermont, these answers might be able to help.
- U.S. Department of Veterans Affairs. "VA Home Loans." Accessed September 25, 2022.
- U.S. Department of Agriculture. "Eligibility." Accessed September 25, 2022.
- U.S. Department of Agriculture. "Single Family Housing Guaranteed Loan Program." Accessed September 25, 2022.
- Vermont Housing Finance Agency. "VHFA Mortgage Programs." Accessed September 25, 2022.