If you are shopping for a home in the Garden State, you are in luck. New Jersey has several home loans, grants and other options for first-time home buyers. Depending on your income and the eligibility requirements, you may be able to get financial help. Thanks to the New Jersey Housing and Mortgage Finance Agency (NJHMFA), more than 115,000 residents have purchased a home over the last five decades. Other than state programs, you can also look into conventional loans and federal loans.
Who Is Considered a First-Time home buyer?
The definition of a first-time home buyer is probably not what you think it is. Even if you have previously owned a home in the past, you may be counted as a first-time homeowner. Depending on the program you are applying for, the requirements can change.
For example, Freddie Mac says that anyone is a first-time home buyer if they have not been a homeowner for three years or more. If you sold your last home four years ago, you are considered a first-time homeowner. Many programs also allow you to apply as a first-time home buyer if you have never owned a home before, but your spouse was previously a homeowner. As long as one of you is a first-time home buyer, you can still qualify for most loans as a first-time buyer.
Ultimately, you can be considered a first-time buyer as long as you meet one of the following conditions.
You are a single parent who only owned a property with your spouse while you were married.
You owned a property that was not in compliance with build code standards, and the cost of improving the property is more than the cost of building a new home.
You have not owned a home, or your spouse has not owned a primary residence for three years or more. Only one spouse has to meet this qualification for both of you to qualify as first-time buyers.
You owned a primary residence like a mobile home that was not attached to a permanent foundation.
What Are the Advantages of Being a First-Time home buyer?
The biggest advantage of being a first-time home buyer is the cost savings. If you are a first-time buyer, you may be able to get help covering your down payment. Often, you get to access more loan programs and grants. Because of these added options, you can pay a lower interest rate or a smaller down payment. Some programs are designed to make monthly mortgage costs more affordable for home buyers.
Many first-time buyers use programs that reduce or eliminate the loan’s down payment. This is true for Veterans Affairs (VA) loans, Federal Housing Administration (FHA) programs and the United States Department of Agriculture’s (USDA) loans. In addition, Freddie Mac and Fannie Mae have multiple loan options for first-time buyers.
Normally, conventional loans require someone to make a down payment that is 20 percent of the home’s purchase price. When you are a first-time buyer, you can get a federally backed loan if you do not have the minimum down payment. In addition to having a low or no down payment, there are also down payment assistance programs that will give you some of the money you need. As an additional benefit, you can also take advantage of certain tax breaks when you are a first-time home buyer.
The Different Types of Loans Available in New Jersey
While some loans that are specific to New Jersey, many of these home loans are available through federal programs. Residents can check out specific mortgage programs or talk to local banks about their options. By shopping around, you can make sure that you get the best deal possible on your mortgage.
VA Loan Options
While VA loans are guaranteed by the United States Department of Veterans Affairs, they are actually provided by different lenders. To get one of these loans, you must be a military member or veteran. These loans are also available to surviving spouses as well.
If you can get one of these loans, you can enjoy multiple benefits. Many VA loans do not require mortgage insurance or down payments. In addition, there is no minimum credit score. To qualify for one of these loans, you may be required to pay a VA funding fee.
If you have a credit score lower than 620 or a down payment of less than 20 percent, an FHA loan can help. This loan program has relaxed qualifications when it comes to credit scores and down payments. If you have a credit score of 500 or higher, you can get an FHA loan with a 10 percent down payment. Meanwhile, you can get a down payment of just 3.5 percent as long as you have a credit score is 580 or higher. If you get an FHA loan, you will be required to have mortgage insurance.
USDA Loan Programs
In most cases, USDA loans are a great option for people who live in rural areas. This mortgage program allows low-income and moderate-income buyers to purchase homes with no down payment. Unlike other programs, USA loans are restricted to rural and suburban areas.
Even if you do not have a traditional score, you can still apply. You just need to prove that you have a good record of paying rent and utility payments on time. If you have a credit score that is higher than 640, your application process will be much faster.
You can get a conventional loan with just 3 percent down as long as you are a first-time home buyer. Additionally, you must meet the eligibility requirements set by Freddie Mac and Fannie Mae. If you can pay a 20 percent down payment, you can avoid the cost of mortgage insurance.
Lenders will give you the best rate if you have a credit score of 740 or higher. If you have a lower score, you may have to pay a higher rate. In general, lenders will expect a minimum score of 620.
This loan program is exclusive to New Jersey, and it is only available for first-time buyers. If you have not owned a home in the last three years, you can get help through the NJHMFA. There are some income, price and location restrictions, so you should check with the program to see if you qualify for this loan.
With NJHMFA loans, you can get a 30-year mortgage with a fixed interest rate. These loans are insured by the government. Other than first-time buyers, these loans are also available to people who are downsizing or upgrading their home.
You must have a credit score of 620 or higher to qualify. Additionally, there are some restrictions on two-unit to four-unit homes. If you are buying a property in this size range, you must use one of the units as your primary residence.
Police and Firemen’s Retirement System Mortgage Program
If you are a first responder in New Jersey, there is a mortgage program that can help you buy a home. This program offers 30-year mortgages with a fixed rate to anyone who has served as a first responder for at least one year. In addition to being a first responder, you must also choose a home that fits the program’s price limit.
The Different Types of Programs Available in New Jersey in 2020
With the New Jersey Housing and Mortgage Finance Agency (HMFA), first-time home buyers can learn what to expect during the buying process. The HMFA offers a buying guide that helps you determine if you are ready to buy a home and the price range you can afford. You can complete this mortgage application checklist to see if you have all of your documents in order.
The First-Time home buyer Program in Trenton
If you live in Trenton, you can access a specific program for first-time buyers. The First-Time home buyer Program is designed for first-time home buyers who have a low or moderate income. With this program, you can access features like matching down payments and closing cost assistance.
Trenton determines the financial assistance you receive based on your household income, ownership history and assets. You must also get approved for a first mortgage and meet the program’s eligibility criteria. Eligible applicants must also buy a home in Trenton.
Golden Neighborhoods Homeownership Program
If you live in Jersey City, you can check out the Golden Neighborhoods Homeownership Program. This program is designed for families who have a moderate or low income. To qualify, families must purchase a home in Jersey City. With this program, you can get help with your closing costs and down payment.
Atlantic City First-Time home buyer Program
With the Atlantic City First-Time home buyer Program, you can get help for your closing costs and down payment. The program is available to home buyers who meet certain income limits. You can get up to $20,000 in assistance. If the home price is less than $100,000, you can get up to $10,000 in assistance. To meet the income requirements, your family must have an income that is at or below 80 percent of the median family income.
This home buyer program functions like a grant. As long as you live in your home for 10 years, the loan is considered forgivable. If you receive just $10,000, you only have to remain in your home for five years to get the loan forgiven. In essence, $2,000 of the loan is forgiven for each year you remain in your home. If you sell your home before this time period is up, then you must pay the remainder of the loan when you transfer the title.
The Different Types of Grants Available in New Jersey in 2020
While home buyers can also use tax credits and national grants, New Jersey has one main grant for first-time home buyers that is specific to New Jersey residents. Other than the NJHMFA grant, you can reduce the cost of buying a home through tax deductions. The home mortgage interest deduction lets you deduct the interest you pay on your home loan for the first $375,000 of your home loan. If you are married, you can deduct the interest on loans worth $750,000 or less. Because the Tax Cuts and Jobs Act (TCJA) increased the standard deduction, this deduction is only useful if you are itemizing your taxes.
The property tax deduction follows similar rules. If you are itemizing your deductions, you can deduct your property taxes from your federal taxes. The TCJA capped this deduction at $10,000, which means you may not be able to deduct all of your property taxes if you live in a high-cost neighborhood in Jersey City or similar urban areas.
You can also save money through the residential energy credit. If you add geothermal heat systems, wind turbines or solar panels to your home, you may qualify for a tax credit that covers up to 30 percent of the cost. This credit also applies to energy-efficient heating systems, air conditioners and windows.
NJHMFA Down Payment Assistance Program
This program is available for New Jersey residents who are first-time home buyers. It helps home buyers cover upfront costs like the down payment or the home’s closing costs. Through the program, home buyers get a loan with zero interest that serves as a second mortgage. For the next five years, they do not have to make any monthly payments. At the end of the term, the loan is completely forgivable as long as the homeowner lived in the home during the entire time.
To qualify, home buyers must have a credit score of 620. They must meet certain income limits, but these income limits may change based on the location of the home, family size and the mortgage’s funding source. Additionally, home buyers cannot have enough liquid assets to cover 80 percent of the mortgage amount.
The NJHMFA program will give you up to $10,000. Technically, the program gives you a loan with 0 percent interest that is forgiven after five years. To qualify for this program, your mortgage loan must be financed through the NJHMFA loan program. You can find financial institutions that offer NJHMFA loans through New Jersey’s lender referral tool
The HomePath Ready Buyer Program
Fannie Mae offers the HomePath Ready Buyer program to first-time buyers. To qualify for the program, home buyers must take an online education course about buying a home. If they are eligible, home buyers can get up to 3 percent of the mortgage amount for closing cost assistance. In order to get this loan, the home buyer must purchase a foreclosed property. In addition, the property must be currently owned by Fannie Mae.
Tips for First-Time Buyers in New Jersey
If you are buying a home in New Jersey, there are a few things you can do to make the purchasing process a little easier. You can start by understanding how much you can afford. Normally, lenders look at the applicant’s debt-to-income ratio to determine if they can get a mortgage. Ideally, your monthly debt payments should be less than a third of your monthly income.
You can afford a more expensive home if you pay a larger down payment. When you increase your down payment amount, it decreases your monthly payment. If your down payment is at least 20 percent of the total home price, you will not have to pay private mortgage insurance. This kind of insurance is only required if you pay down payments that are less than 20 percent.
Before you buy a home, you should check your credit score. Your score will determine your interest rate and if you qualify for a loan. It might be possible to quickly boost your credit score by removing negative reports from your credit record. You should also prepare the financial documents you will need to show the bank. In general, the bank will want to see your employment history, bank account balance, outstanding loans and similar data before it will issue you a mortgage.
Next, you should find the best location for a home. You should consider the school district as well as how long your commute will be. Additionally, you may want to look at the area’s shopping and recreation options as well.
Once you have narrowed down your search to the right area, you can work with a real estate agent to find the right home. Getting pre-approved for a loan will simplify the buying process by giving you a better idea about what you can afford. After you find the right home, you should also get a home inspection so that you know what repairs will need to be done on the property.
Where to Get Down Payment Assistance in New Jersey in 2020
If you live in places like Trenton, Jersey City, Atlantic City and Newark, your city may have down payment assistance programs you can use. The main option for home buyers is the NJHMFA Down Payment Assistance Program. As long as you meet certain criteria, you can get up to $20,000 to cover your down payment as well as your closing costs.
Other than the NJHMFA program, you can also get help with your mortgage costs by using federal programs. While private lenders often want a down payment of 20 percent, many federal programs ask for a lower amount. With an FHA loan, you can pay just 10 percent. If you have a decent credit score and buy a home in the right area, you can get a down payment of just 3.5 percent.
First-Time Buyer Loans With No Down Payment in New Jersey
In general, you will be expected to pay a portion of the down payment in New Jersey. The NJHMFA program covers $10,000 to $20,000 of your down payment, but $20,000 might not equal 10 or 20 percent of the loan. It depends on how expensive your future house will be.
If the NJHMFA program offers enough money to cover your down payment, you will still have to consider your closing costs. In many cases, closing costs add up to between 1 and 5 percent of the home’s total price. If you are buying a $200,000 home, your closing costs might be $4,000 to $10,000. It is important to consider your closing costs when budgeting for a home because they can quickly add up to a significant amount.
There are ways around paying closing costs in New Jersey. If you do not have enough money, you can always place a larger offer on a home. Then, you ask the seller to cover the closing costs as a part of your offer. For example, you could offer $305,000 for a property that is listed for $300,000 if you expect closing costs to add up to $5,000. By doing this, you can reduce the amount of upfront cash you have to spend on your new home.
Essential Things to Remember When Applying for a Mortgage in New Jersey
When you apply for a mortgage in New Jersey, there are a few things you should be aware of. One of the best things you can do is improve your credit score. While you can generally get approved with a credit score of 680 or higher, you should ideally have a score that is 700 or higher. If you do have a low score, you can apply for FHA mortgages because they are available to people who have poor credit.
If you are applying for a mortgage, you should avoid applying for other loans or credit cards until your mortgage closes. Otherwise, the lender may deny your mortgage application at the last moment. You should also avoid closing any accounts until you are done buying your new home because closed accounts can impact your credit score.
Finally, you should be willing to shop around. Each lender charges a different interest rate, and many lenders have different credit requirements as well. By shopping around for your mortgage, you could save yourself thousands of dollars on interest costs over the long run.
Learn about Other First Time Home Buyer Programs