Buying a home can be challenging, especially for buyers confronting all the financial realities of purchasing a house for the first time. You may even think homeownership is out of reach, because you have a low credit score or a moderate income.
But there’s good news for first-time homebuyers looking for a home in Virginia. The state—known for its Southern hospitality—has a slew of special loans and financial assistance programs that can lower your costs of obtaining homeownership.
So if you’re hoping to buy your first home in Virginia, here’s a rundown of the various state-sponsored first-time homebuyer assistance programs, as well as eligibility requirements and how they work.
Federal first-time homebuyer assistance
Before we take a closer look at what the state of Virginia has to offer, let’s review the loans the federal government makes available. First-time buyers can apply for loans from the Federal Housing Administration, Veterans Affairs, and the U.S. Department of Agriculture (USDA).
These first-time homebuyer loans can vary, but they generally offer a lower down payment requirement, reduced interest, limited fees, and the possibility of deferring payments.
The federal loans and Virginia Housing grants (more on that below) can often be combined, lowering overall out-of-pocket expenses for qualified borrowers.
Additionally, borrowers who snag one of these federal loans can benefit from the Virginia Housing’s Mortgage Credit Certificate program, which helps reduce the amount of federal income tax you owe each year.
State of Virginia homebuyer assistance
Since 1972, Virginia Housing has helped 234,859 homebuyers buy quality and affordable housing. The program is funded not by taxpayer dollars, but with money raised in capital markets and net revenues to assist first-time and repeat homebuyers.
One of the following loans—or a combination of programs—could help you unlock the door to homeownership.
Virginia Housing Conventional Home Loan Programs
The Virginia Conventional Home Loan Program is a 30-year, fixed-interest rate loan that’s the crown jewel of the Virginia Housing program.
“It resembles the popular Conventional 97 [a Fannie Mae loan], which gives homebuyers with excellent credit the ability to make a 3% downpayment on a home,” says Dan Green, CEO of Cincinnati-based Homebuyer.com, a nationwide mortgage lender for first-time homebuyers. “Virginia’s subsidized program does the same, except that it reduces the FICO score requirement to 640.”
Another highlight? This loan has the lowest conventional mortgage insurance payments available. (Loans with less than a 20% down payment often require mortgage insurance.)
The Virginia Housing Conventional Loan also has a No Mortgage Insurance program. As a result, qualified borrowers get all the Virginia Housing Conventional loan perks. And borrowers with a credit score of 660 or more can enjoy lower monthly payments, requiring no mortgage insurance.
Eligibility requirements for the Conventional and No Mortgage programs
Here are some of the main requirements first-time homebuyers need to know to qualify for the Conventional and No Mortgage programs:
- Borrowers must be first-time homebuyers, or must not have owned a home for at least three years.
- Buyers need to make a 3% down payment (or less if participating in the Down Payment Assistance Grant or Plus Second Mortgage mentioned below).
- The No Mortgage Insurance program sets limits on applicants’ maximum income.
- Borrowers may not exceed a 45% debt-to-income ratio.
- The programs have a maximum seller concession of 3% or 6%, if the borrower makes a down payment of 10% or greater. (Seller concessions are closing costs that the seller agrees to pay.)
- There is a limit of a 97% loan-to-value (LTV). (LTV is the amount of money you borrow from a lender, divided by the home’s purchase price, expressed as a percentage.)
- The funds must go toward a single-family residence, townhouse, some types of condo, or manufactured homes.
- Sales price and loan limits may apply when these programs are combined with other Virginia Housing products.
The Virginia Housing Plus Second Mortgage
There’s absolutely no down payment required for first-time borrowers who qualify for the Virginia Housing Plus Second Mortgage, when paired with an eligible Virginia Housing first mortgage. The second mortgage is capped at 3% to 5% of the purchase price, depending on your credit and the type of the first mortgage you obtain.
The second mortgage is a 30-year fixed-rate loan with no prepayment penalty. To qualify, borrowers must have 1% of the purchase price available. Income limits and house price limits apply. In addition, the house you want to buy must meet first-mortgage requirements.
Bonus: If you have a credit score of 680 or higher, you have the option to finance part of the closing costs with this mortgage.
Down payment help
One of the biggest hurdles in buying your first home is coming up with a down payment. The Virginia Housing’s Down Payment Assistance Grant provides 2% to 2.5% of the home’s purchase price to put toward the down payment. Because it’s a grant, you don’t have to pay it back.
Note that you are subject to income limits, and the funds must be used in conjunction with an eligible Virginia Housing loan.
The closing-cost assistance grant
Closing costs are another out-of-pocket expense that can be pricey. Still, the Down Payment and Closing Cost Assistance Grant (DPA) “gives homebuyers the peace of mind needed to close with confidence,” says Latoya Perkins, an agent at Virginia CU Realty LLC, who helps first-time buyers participating in the Virginia Housing assistance programs. “Homebuyers can utilize funds for closing cost or down payment, which makes homeownership affordable and possible for most first-time homebuyers.”
The closing cost assistance program is open for first-time borrowers who meet the income limits required for applying for a USDA or VA loan. The funds cover up to 2% of the purchase price and can be used toward closing costs, a USDA guarantee, or the VA funding fee. And since it’s a grant, you never have to pay the money back.
Help from your new hometown
In addition to the statewide programs, your new hometown may offer assistance. Check-in with your local U.S. Department of Housing and Urban Development. “These agencies offer impartial advice and should have on-the-ground knowledge of how local programs work,” says Kate Wood, a home and mortgage expert at NerdWallet.
For example, if you’re buying your first home in Chesapeake, VA, you might qualify for the Call Chesapeake HOME program, which gives up to $13,000 in down payment and closing cost assistance. Or maybe you’re a remote worker and want to move to Portsmouth, VA, one of the top 10 cities for first-time buyers. In that case, you might be able to get funds to use toward a down payment and/or closing costs with the Come HOME to Portsmouth program, if you qualify for a first mortgage with Virginia Housing, the USDA, VA, or FHA.
How to get started
Ready to get the ball rolling? First, take Virginia’s free homebuyer class. The course is required for anyone applying for a Virginia Housing home loan and is available in person or online. Next up, find an approved lender to get a mortgage pre-approval letter.
Then, finally, the fun part: looking at listings and touring homes with an experienced buyer’s agent.
The post Virginia’s First-Time Homebuyer Assistance Programs for 2022 appeared first on Real Estate News & Insights | realtor.com®.