7. Mortgage Basics - Special and first-time buyer programs

Special and first-time buyer programs:

If a lack of a substantial down payment is what is keeping you from your dream home, then you will be glad to know that there are many programs designed specifically for first time homebuyers. Some may allow you to put down lower down payments - sometimes as low as 3 percent - while others may offer no down payment loans for those who qualify. Ask your lender if they offer low down payment loans or provide first-time home buyer programs. Here are a few specific agencies that may also be able to help:

• Federal Housing Administration (FHA): The FHA is an agency of the Department of Housing and Urban Development, and insures residential mortgage loans made by private lenders. If you have FHA insurance, you can buy a home with a low down payment, either ranging from 3 to 5 percent of the FHA appraised value or the sale price of the home, whichever is lower. FHA mortgages have a maximum loan limit that varies according to the average value of homes in a given region.

• Fannie Mae: Offers a mortgage primarily to people with modest incomes who want to become homeowners. The mortgage, known as Fannie Mae97, features a loan-to-value (LTV) of 97 percent, and requires only a 3 percent down payment on either a 25 or 30 year fixed mortgage. To qualify for this mortgage, borrowers must complete a pre-purchase homebuyer education session.

• Veterans Administration: The qualifications for VA loans are more flexible than FHA loans or conventional loans and allow veterans to buy a house that costs up to $203,000 without the need for a down payment. For qualification guidelines, check with you nearest VA regional office.

• Rural Housing Service: Farmers and other qualified borrowers buying property in rural areas who have trouble obtaining loans elsewhere can apply for loans from this agency. It offers low down payment loans as well as no down payment loans to borrowers with low to moderate incomes who live in rural areas or small towns. Check with your local RHS office to see if you qualify. State and local government programs: First-time homebuyers who meet specified guidelines may qualify for loans sponsored by certain state or local housing agencies. These programs may offer low down payment and/or low interest rates. Others may be able to assist in the down payment or closing costs. Check with your state or local housing authority for more information.