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First Time Homebuyer Assistance 

Several years ago, some first time homebuyer assistance programs were developed as a means to help new homeowners handle the purchase of their first home.  Borrowers were given tools to help them understand how to budget and make timely payments so that they would not end up with financial difficulties that would lead to foreclosure.  The idea was that better educated consumers would be benefited, but so would the lenders.  The program included a required class or reading in order to receive the incentive of assistance with their down payment. 


People who were applying for the FHA-insured types of mortgages were offered the original first time homebuyer assistance programs.  In some ways, they were like the bad credit mortgage loans of today because the credit requirements for FHA loans were lower than for conventional loans.  Borrowers loved these programs because they allowed them to get nearly 100% financing on mortgages for new homes.  Eventually, lenders and mortgage insurance companies realized that these programs were too risky and expensive because whenever the housing market dropped the homeowner would effectively be upside down in the mortgage because he started out with no equity.  The consumers found that without equity they could not obtain a mortgage refinance with a better rate and without mortgage refinancing they could not afford to make the payments.  Many borrowers found that it was easier to simply walk away from the loan than to try to hang onto it. 


Nowadays there are not any first time homebuyer assistance programs that help make the borrower's down payment.  However, there are programs that offer certain incentives to borrowers who wish to purchase a home.  These are somewhat restrictive and only certain individuals may qualify.  One such program is the "Good Neighbor Loan" that can be obtained by teachers and certain other civil servants.  This loan requires a second lien and there is an occupancy requirement.  After a certain amount of time if all other terms are met as required, the second lien is forgiven. 


Other first time homebuyer assistance programs that are available apply only to HUD-owned properties and are designed to revitalize specific areas.  FHA loans that only require a 3.5% down payment are another type of assistance program since the down payment requirement is so low.  While these programs do serve to assist the homebuyer, only time will tell if they will be more successful than the original first time homebuyer assistance programs which actually caused more foreclosures than they were able to prevent.  By consulting with a loan officer who knows all of the available options, you can determine the best type of loan for your circumstances.