Buying your first home can be an intimidating and expensive process. That’s why the federal and Ohio state governments have created loan and mortgage programs specifically for first-time homebuyers. No matter what your financial situation, they can make homeownership both more accessible and more affordable. When buying a house you should consider working with a financial advisor to make sure your finances are in order. This can help you maximize your opportunities and lower your overall costs.
Federal First-Time Homebuyer Programs
Before we dive into the programs designed specifically for residents of Ohio, we’ll touch on the handful of national homebuyer programs available to the whole country. You’ll want to consider both federal and state options when conducting a mortgage search, and some programs might work together to help you maximize the benefit you’re receiving.
FHA Loans
| Pros | – Low down payment – Flexible credit approval |
| Cons | – Higher down payment needed for those with a low credit score |
| Eligibility | – At least 3.5% of the home’s value as a down payment – Credit score of 500 or above – Debt-to-income ratio <43% |
| Best For | – Those who don’t have a great credit history or enough money for a down payment |
The U.S. Federal Housing Administration backs FHA loans, but you’ll actually apply for one through an outside lender. These mortgages are a great option for potential homebuyers of any background. While conventional loans require a 20% down payment, you’ll only need to put 3.5% of your new home’s value down at the time of purchase.
In order to receive the full perk, you must have a FICO® credit score of at least 580. If yours is lower, you’ll need to make a down payment closer to 10%, which is still half of a typical down payment. Even with the credit score requirement, an FHA loan is one of the easiest federal programs to qualify for.
VA Loans
| Pros | – Up to 100% loan coverage of your home’s value – Usually, come with lower closing costs than conventional loans – No private mortgage insurance requirement |
| Cons | – The application process can be drawn out – Requires payment of a VA funding fee |
| Eligibility | – Must be a current or former military member, spouse or another eligible beneficiary – Credit score of 620 or higher |
| Best For | – Veterans with little monthly income or savings for a conventional down payment |
The Department of Veterans Affairs started insuring VA loans provided by third-party mortgage lenders after they noticed a problematic pattern. Military members were having trouble affording a down payment and monthly payments after finishing their service. To help, VA loans do not require any sort of down payment or private mortgage insurance.
In most situations, you need a 620 credit score or higher to secure approval for a VA loan. On top of this, you need to pay a VA funding fee, which will range anywhere from 1.25% to 2.4% of your home’s value depending on whether or not you choose to pay a down payment.
Aside from the funding fee, there are almost no other extraneous costs to deal with on a VA loan. You’ll also likely find that your closing costs will be cheaper than conventional and other mortgages, which should help you shore up your finances in the short term.
USDA Loans
| Pros | – No down payment is required – Can be approved even with a low credit score |
| Cons | – If you qualify for a conventional mortgage, you can’t get one |
| Eligibility | – Adjusted household income must be equal or below 115% of the area median income to qualify for USDA guaranteed loan program – Must purchase a home within an eligible rural area |
| Best For | – Low-to-mid-income Americans looking to live in a rural or suburban area |
A United States Department of Agriculture, or USDA, the loan also has a specific legal name: “Section 502 Single Family Housing Guaranteed Loan Program.” These mortgages are specifically to attract lendees to move to rural, or at the very least semi-rural, places around the U.S. Simply find a single-family home that’s USDA-approved to be eligible for a loan and you’ll be free to apply.
Perhaps the most attractive feature of this mortgage is that it completely eliminates the need for a down payment. But if your credit score falls a bit lower on the FICO® spectrum, you may have to pay a down payment of around 10%.
To make things even better, a USDA loan doesn’t require applicants to have a strong, or even decent, credit score and history. However, because of this, you will not be eligible for a USDA loan if your household income level is higher than 115% of the area’s current median income or if you have qualified for a conventional loan.
Good Neighbor Next Door Program
| Pros | – Get a flat 50% discount on the value of your new home – After three years, you can sell the home and keep all equity |
| Cons | – Not available to most people and in most areas – You’re required to live in the home for at least three years following the purchase |
| Eligibility | – Must be a police officer, firefighter, emergency medical technician or a pre-K to 12th-grade teacher |
| Best For | – Teachers or emergency personnel with little savings |
The Good Neighbor Next Door Program is one of the more distinctive federal mortgage offerings on the market. It’s in place solely for emergency personnel and pre-K through 12th-grade teachers. Although not technically a loan, it allows these individuals to receive a 50% discount on the purchase price of a new home. To pay for the home, you could get a conventional, VA or FHA mortgage or pay cash.
There are some preconditions you must follow in order to remain eligible for this program, though. In order to save half of your home, it must be within what the Department of Housing and Urban Development (HUD) determines is a “Revitalization Area.” Furthermore, you must agree to make it your primary living residence for at least the next three years. The good news is that if you meet this term, you can sell the home if you choose and hold onto any equity and profit.
Fannie Mae/Freddie Mac
| Pros | – Very low down payment stipulations – Little to no credit is needed for approval – Many loan styles available |
| Cons | – Could come with higher interest rates |
| Eligibility | – In some cases, no income requirements in underserved areas |
| Best For | – Anyone who is looking for a low down payment loan option, but doesn’t qualify for any of the above options |
Freddie Mac and Fannie Mae are mortgage lenders that the federal government created, and each has a number of first-time homebuyer options. While they’re technically two different entities, they offer very similar benefits suitable for anyone buying a first home.
The HomeReady® loan from Fannie Mae need only be accompanied by a 3% down payment. This makes it a great choice for anyone who’s strapped for cash, has a credit score as low as 620 and makes an income at or near the U.S. median. With a HomeReady® loan, you must have private mortgage insurance at the time of purchase. But once you’ve accrued 20% equity in your new home, you can cancel it.
Freddie Mac, on the other hand, offers Home Possible® mortgages, with a down payment of just 3%. Home Possible® loans come in 15- to 30-year fixed-rate and 5/5, 5/1, 7/1 and 10/1 adjustable-rate terms. You also will not need any credit history for this loan.
NADL
| Pros | – Minimal credit score requirements – No down payment and no private mortgage insurance – Cheap closing costs |
| Cons | – Limited group of eligible lendees |
| Eligibility | – Home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts |
| Best For | – Native American veterans that lack money for a down payment |
Native American veterans and their spouses can apply for a Native American Direct Loan (NADL) for their new home. This VA-backed mortgage comes with many perks. Most notably, it has a 0% down payment and a set interest rate. Eliminating the need for a down payment opens the door for many more individuals and families to step into a new home. This rate currently sits at 4.5%, though that is subject to change based on movement within the market and Prime Rate.
NADLs don’t require high credit score minimums. You also will not have to purchase private mortgage insurance, which is a perk that extends from normal VA loans. In an effort to cut down on the extra expense that closing costs can create, the VA has significantly lowered the fees associated with NADLs.
Ohio First-Time Homebuyer Programs
The Ohio Housing Finance Agency (OHFA) provides qualified first-time homebuyers with affordable 30-year, fixed-rate mortgage options. The state does not provide OHFA loans directly. Rather they come through a network of participating lenders, credit unions and mortgage providers throughout the state.
OHFA programs aim to serve low- and moderate-income Ohioans that wouldn’t normally be able to buy a home. As such, they have income, debt-to-income ratio and purchase price limits. The programs have specific eligibility requirements, but you should have a credit score of at least 640 on the FICO® scale if you hope to participate. Homebuyers also have to complete a free homeowner education course at any Ohio agency the U.S. Department of Housing and Urban Development (HUD) approves of after they submit their loan application.
Grants for Grads
| Pros | – Low-interest rate – Up to 5% down payment assistance – Potential to get down payment assistance forgiven – Can be combined with a federal tax credit |
| Cons | – Must stay in Ohio longer than five years to reap the full benefit |
| Eligibility | – Completed a degree from an accredited school in the past 48 months – Credit score of 640 or higher – Income, debt-to-income ratio, and purchase price limits dependent on home location and household size – Must complete a homebuyer education class |
| Best For | – Recent graduates who need support buying their first home |
In order to encourage educated individuals to make Ohio their home, the state started the Grants for Grads program. Grants for Grads offers both a discounted mortgage interest rate and down payment assistance for those who have earned an associate, bachelor’s, master’s or doctoral degree from an accredited university within the last 48 months.
OHFA payment assistance could cover between 2.5% and 5% of the down payment amount. So, if you’re purchasing $300,000 with a 20% down payment, you could receive up to $3,000 in help. The OHFA forgives its assistance after five years so long as you remain in Ohio. If you sell your home or move out of Ohio within five years of the home purchase, you will have to repay some or all of it.
Ohio Heroes
| Pros | – Low-interest rate – Can be combined with down payment assistance – Potential to get down payment assistance forgiven – Can be combined with a federal tax credit |
| Cons | – Only available for certain professionals |
| Eligibility | – Must be a police officer, firefighter, emergency medical technician, paramedic, physician, nurse, nurse practitioner, pre-K to 12th-grade teacher, school administrator, student counselor, veteran, active duty military member, or reserve military – Credit score of 640 or higher – Income, debt-to-income ratio, and purchase price limits dependent on home location and household size – Must complete a homebuyer education class |
| Best For | – Public servicemen and women who need a discount on monthly mortgage payments |
The OHFA has created Ohio Heroes program to show gratitude to residents that work in the public sector. As with several Ohio state programs, Heroes provides discounted mortgage interest rates to qualified first-time homebuyers.
If you get a Heroes loan, you can also choose to apply for further financial assistance. You can use the assistance toward your down payment, closing costs and any other upfront costs. So long as you don’t sell your home, refinance your home or move out of Ohio within seven years, you won’t even have to repay the funds.
RenovateOhio
| Pros | – Finances for both home purchase and costs for updating or renovating |
| Cons | – Cannot be combined with the OHFA federal tax credit |
| Eligibility | – Property must be a one- to four-family home completed for at least a year – Credit score of 640 or higher – Income, debt-to-income ratio, and purchase price limits dependent on home location and household size – Must complete a homebuyer education class |
| Best For | – Those who need support covering the purchase and renovation costs of their first home |
The OHFA RenovateOhio program also goes by another name: the FHA 203(k) loan. It allows participants to combine mortgage and renovation costs into one long-term, fixed-rate mortgage so they can afford the purchase and rehabilitation of their dream home. The total mortgage amount will account for the projected value of the property once all work is complete, including labor costs.
RenovateOhio has a few additional stipulations compared to the OHFA programs listed above. In addition to having a credit score over 640 and meeting income and debt-to-income ratio limits, the property must be a one- to four-family home that has been built for at least one year. It’s also important to note that not all lenders the OHFA approves enroll in the RenovateOhio program. Be sure to ask the mortgage provider you plan to go with if you are interested in this particular option.
Target Area Loan
| Pros | – Low-interest rate – Do not have to be a first-time homebuyer to qualify |
| Cons | – Only available in areas of the state that some may deem unattractive to live in |
| Eligibility | – Credit score of 640 or higher – Income, debt-to-income ratio, and purchase price limits dependent on home location and household size – Must complete a homebuyer education class |
| Best For | – People willing to buy in areas where the housing market has experienced challenges |
To revitalize neighborhoods that have experienced economic trouble, the OHFA began providing competitive interest rates to any qualified buyer purchasing a home in certain parts of the state. In general, a target area is somewhere the federal government has identified according to household income data or an area of chronic economic distress that the OHFA identified and the federal government approved. Most Ohio counties contain at least one target area.
Though you don’t have to be a homebuyer to qualify, the Target Area Loan is available to those purchasing their first residential property. All other credit scores, income, purchase price, and education requirements associated with the OHFA do apply, though. You can determine whether a home is within a target area by using the OHFA’s Census Data Tract Lookup.
Your Choice! Down Payment Assistance
| Pros | – Receive up to 5% of your home’s purchase price – Flexible use allowed – Does not need to be repaid if you stay in your home for seven years |
| Cons | – Larger assistance usually comes with higher interest rates |
| Eligibility | – Credit score of 640 or higher – Income, debt-to-income ratio, and purchase price limits dependent on home location and household size – Must complete a homebuyer education class |
| Best For | – Homebuyers taking advantage of OHFA programs that need more help to cover pre-closing expenses |
The Your Choice! grant helps OHFA homebuyers afford their down payment, closing costs and other pre-closing expenses. Applicants can choose between 2.5% or 5% of their home’s purchase price. The higher the amount you apply for, the higher your interest rate typically is.
As with other OHFA assistance, the OHFA forgives the assistance after a certain number of years so long as you don’t sell or refinance your home. Of course, if you do leave within a seven-year time frame, you will have to repay the entire assistance amount.
OHFA Advantage
| Pros | – Up to $2,500 in additional down payment assistance – Can be combined with the Your Choice! Down Payment Grant – Can be combined with a federal tax credit |
| Cons | – Strict income requirements – Interest rates can be higher when pairing with other down payment grants from the OHFA |
| Eligibility | – Credit score of 640 or higher – Income, debt-to-income ratio, and purchase price limits dependent on home location and household size – Must complete a homebuyer education class |
| Best For | – Low- to moderate-income earners that need help covering the upfront costs of homeownership |
Your income can limit more than your ability to make mortgage payments. If you make significantly less than those in your area, you could also face trouble achieving your down payment and closing costs. That’s why the Ohio Housing Finance Agency created the Your Choice! and OHFA Advantage grants. Each grant provides funds to help cover the upfront costs of buying a home.
The OHFA Advantage loan offers either $1,500 for buyers whose income falls within 80% of the median income in the county and $2,500 for those whose income falls within 50%. This is in addition to the 2.5% or 5% that homebuyers can get from the Your Choice! program, but the rate will be slightly higher if you accept other payment assistance.
Mortgage Tax Credit
| Pros | – Up to 5% of the home’s purchase price in federal tax credits – Can be combined with other OHFA loans and grants – Can be combined with the IRS home mortgage interest rate deduction |
| Cons | – Cannot cover more than you owe after deductions, exemptions, and other credits are considered |
| Eligibility | – Must owe a tax balance – Credit score of 640 or higher – Income, debt-to-income ratio, and purchase price limits dependent on home location and household size |
| Best For | – Low- and moderate-income borrowers taking advantage of OHFA mortgage and down payment assistance programs |
The Mortgage Tax Credit (MTC) helps Ohioans save even more on their home purchase. So long as you meet the basic income and purchase price eligibility requirements and owe a tax balance to the federal government, you could qualify for a mortgage credit certificate.
For OHFA first-time homebuyers, the credit is worth up to 40% of your annual mortgage interest up to $2,000. Homebuyers that aren’t using an OHFA loan can also qualify for the credit but it’s for slightly less. If you purchase a bank-backed property, the credit would provide 30%. If you purchase a property in a designated target area, the credit would be worth 25% of the price. For all other properties, the credit would be worth 20%.
There is a limit on the maximum amount of credit you can receive, though. You can’t get a credit worth more than your total federal tax liability after deductions, exemptions, and other credits. The best part of the Mortgage Tax Credit is that you can apply it to your federal tax bill every year for 30 years if the property remains your primary residence. Plus, participating in MTC does not mean you can’t use the IRS home mortgage interest deduction or receive OHFA down payment assistance.
The Bottom Line
Buying a house can be a rewarding experience that gives you an asset to build wealth off of and give you a place to call your own. Many people don’t pull the trigger on home ownership because they can’t come up with a downpayment or they don’t qualify. That’s why programs have been established by both the federal government and the state of Ohio in order to help more people get into a home. Each offers unique benefits that might be right for what your needs are.
Tips For Successfully Managing a Mortgage
- Buying a home is a huge financial decision that can have an impact on your life for a very long time. Before pulling the trigger you may want to make sure your finances are in order by working with a financial advisor. Finding the right financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Mortgage interest rates and APRs change daily, so do as much research as possible when making a final decision as to the lender and type of loan your want. A home loan is a massive financial undertaking, so be sure that your mortgage is sustainable on your current income. And be sure to have an emergency fund that can pay the bills for a time if your situation changes.
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