U.S. Markets open in 6 hrs 35 mins

First-Time Home Buyer Programs in Ohio For 2018

Liz Smith
Ohio First-Time Home Buyer Programs

It’s safe to say Ohio has a healthy housing market. List prices have climbed steadily and property taxes are reasonable for the Midwest. Buying your first home in Ohio can still be intimidating and expensive, though. That’s why the federal and Ohio state governments have created loan and mortgage programs specifically for first-time home buyers. No matter what your financial situation, they can make homeownership both more accessible and more affordable. As you assess your mortgage options, check out the SmartAsset matching tool, which can pair you with as many as three nearby experts who will help you make the right choice.

Federal First-Time Home Buyer ProgramsFHA 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 down payment
– Credit score of 500 or above 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 home buyers 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 an 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’s 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 required
– Can be approved even with a low credit score Cons – If you qualify for a conventional mortgage, you can’t get one Eligibility – Cannot make more than 115% of the adjusted U.S. median income
– 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, 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 income level is higher than 115% of the current U.S. median income or 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 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 in 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 of 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 off 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 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 home buyer 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.

On the other hand, Freddie Mac offers Home Possible® mortgages, which come in two variations: “Home Possible: 95% LTV” and “Home Possible Advantage: 97% LTV.” LTV stands for loan-to-value, indicating that your down payment will only have to be either 5% or 3%, respectively. The Home Possible loan comes in 15- to 30-year fixed-rate and 5/5, 5/1, 7/1 and 10/1 adjustable-rate terms, along with the aforementioned cancelable private mortgage insurance. You also will not need any credit history for this loan. The Home Possible Advantage mortgage is essentially the same, only it does have some level of credit requirements and only comes in fixed-rate variations.

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 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 these fees associated with NADLs.

Ohio First-Time Home Buyer Programs

Ohio First-Time Home Buyer Programs

The Ohio Housing Finance Agency (OHFA) provides qualified first-time home buyers with affordable 30-year, fixed rate mortgage options. In Ohio, first-time home buyer means you have not owned or had an ownership interest in your primary residence in the last three years, were honorably discharged from the armed forces or purchase a home in a so-called target area of Ohio. 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.

Since OHFA programs aim to serve low- and moderate-income Ohioans that wouldn’t normally be able to buy a home, 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. Home buyers 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 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 home buyer 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 a $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 home buyer education class Best For – Public servicemen and women who need a discount on monthly mortgage payments

The OHFA has created Ohio Heroes 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 home buyers.

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 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 home buyer 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 home buyer 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 home buyer 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 home buyer to qualify, the Target Area Loan is available to those purchasing their first residential property. All other credit score, 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 home buyer education class Best For – Home buyers taking advantage of OHFA programs that need more help to cover pre-closing expenses

The Your Choice! grant helps OHFA home buyers 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 timeframe, 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 home buyer 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 40%. This is in addition to the 2.5% or 5% that home buyers 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 home buyers, the credit is worth up to 40% of your annual mortgage interest up to $2,000. Home buyers 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.

Tips For Successfully Managing a Mortgage

Ohio First-Time Home Buyer Programs
  • 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 what you’ve chosen is in life not only with your current income, but also any plans for the future.
  • Financial advisors typically specialize in creating a succinct financial plan based on your goals, needs and current situation. Because mortgages are so significant, advisors include them in your holistic financial plan. The SmartAsset financial advisor matching tool takes your answers to a few personal questions and pairs you with up to three advisors in your area who can cater to your specific needs.

Photo credit: ©iStock.com/BrianAJackson, ©iStock.com/monkeybusinessimages, ©iStock.com/seb_ra

The post First-Time Home Buyer Programs in Ohio For 2018 appeared first on SmartAsset Blog.

Related Articles: