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  • Writer's pictureMike Roberts

Homeownership Incentives for First-Time Buyers

Owning a home is an essential part of the American dream for most people. Did you know that federal and state governments, as well as mortgage lenders, offer homeownership incentive programs that can help you buy your first house? Read on to learn more about the opportunities available to you.

More than just federal loan programs

Federal loan programs have served the homebuying public for decades. The Veterans Administration provides low-interest and low-down-payment loans to active-duty military personnel, veterans and their spouses. The Federal Housing Administration (FHA) offers low-interest loans and low-down-payment programs for the rest of the home buying market. The U.S. Department of Agriculture helps with loans in rural America, and Fannie Mae and Freddie Mac, two quasi-governmental agencies, offer programs as well.

Beyond these, however, there are other lesser-known grants and low-down-payment programs that serve as homeownership incentives specifically for first-time buyers.

Who is a first-time homebuyer?

Whether you qualify for these homeownership incentives depends on whether you meet the Department of Housing and Urban Development’s (HUD) definition of a first-time homebuyer, which includes:

  • Individuals who have not owned a principal residence within three years of the date of purchase of a single-family home.

  • A single parent or displaced spouse who has owned a home only with a former spouse while married.

  • An individual who has owned only a home that lacks a permanent foundation (think mobile homes).

  • An owner of a home that does not satisfy state, local and federal building codes, where the cost to achieve compliance exceeds the value of the residence.

HUD, Fannie Mae and Freddie Mac programs and grants

If you qualify as a first-time homebuyer, HUD has creative homeownership incentive programs for which you may qualify. The Good Neighbor Next Door program helps teachers and first responders purchase their first homes with as little as $100 down. The 203k program loans you money to purchase a home as well as to renovate and repair it.

Several homeownership incentive programs require only minimal down payments from first-time homebuyers. Freddie Mac offers the Home Possible program for low- to medium-income earners, requiring only a 3 percent down payment. Freddie Mac’s HomeOne loans also require only 3 percent down, as does FHA’s Home Ready Program.

For Native Americans

HUD offers Section 184 loans to any Native American, not just first-time homebuyers. Perhaps the most generous loan assistance program available, these loans require borrowers to pay only a 1.5 percent up-front loan guarantee fee and 2.25 percent down.

State incentive programs

Research your state via HUD’s website to see what lending assistance programs may be available. Many states have their own versions of veteran and low-income assistance programs to aid first-time buyers.

IRS lends a hand

As a qualifying first-time homebuyer, you can tap up to $10,000 from an Individual Retirement Account without incurring the 10 percent penalty that hits most withdrawals, even if you are below age 59-and-a-half. You will still owe regular income taxes on this withdrawal.

Of course, all homeowners are able to deduct the cost of points paid plus mortgage interest and property taxes from their federal income taxes, although for some it may make more sense to take the standard deduction. Check with a tax professional.

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