Taking the step toward owning your own home can be pretty daunting- especially in high cost of living areas like Hawaii. But First Time Home Buyers can relax knowing that there are programs out there to make it easier to step into home ownership. You don’t need to have a 20% down payment and a great credit score either. If you are ready to own your first home, these programs will make it easier for you to qualify.
- FHA loans, or Federal Housing Authority is a great option for first time home buyers with less than stellar credit scores. Borrowers with scores as low as 500 will qualify for an FHA loan but will require a down payment of 10%. For those with score of 580 and above, FHA accepts down payments as low as 3.5%. Keep in mind that you will be required to have mortgage insurance for the duration of the loan. Private mortgage insurance costs around 0.5-1% of the entire loan amount per year, that’s as high as $250/ month for $350,000 home loan. Learn more about FHA loans.
- VA loans are available to service members and veterans as well as surviving spouses. Benefits include no minimum credit score and $0 down payment without the requirement for mortgage insurance. However you will likely have to pay the VA funding fee.
- USDA loans are available for rural and suburban home buyers. These loans are available through the USDA Rural Development Guaranteed Housing Loan Program. Applicants income cannot exceed 115% of median household income and must be a US citizen, US national, or Qualified Alien. Those with a credit score of 640 or higher receive streamlined processing. Lower scores must meet more stringent standards. Find out more about the program here.
- Conventional Mortgages are available with as little as 3% down. You will need to pay for a mortgage insurance if you put less than 20% down. A credit score of 740 will get you the best rates but more lenders will accept 620 and above.
- Affordable Resale Program: Hawaii Housing Finance and Development Corporation, or HHFDC, offers a couple of programs to make buying a home more accessible for Hawaii residents. You can learn more about the Affordable Resale Program.
- Another program from HHFDC is the Mortgage Credit Certificate. This program allows home buyers to recoup up to 20% of their mortgage interest from their Federal Taxes each year. Learn more about it here.
Before you jump into home ownership it’s important to know how much house you can afford so you can be confident that you can make your mortgage payments, home owners insurance, any necessary repairs, and cover the cost of mortgage insurance if you need it- not to mention your usual costs like food, water, and utilities. This calculation will take into account your current debt obligations as well as your income. Standard advice is to keep your total debt-to-income ratio at or below 36%. To calculate DTI, add all monthly debt payments and divide them by your monthly income. You might find that striving for a DTI closer to 25% is a lot more manageable- allowing you more wiggle room in your income to cover your other expenses.