Do Banks Offer Mortgage Assistance for First-Time Buyers?

Reader Q&A: We get a lot of questions from our website visitors, and we do our best to answer as many as possible. This is by far one of the most common questions among first-time home buyers. Though it comes in many forms, the question is this: "Do banks offer some kind of mortgage assistance for first-time buyers? And if so, what kind of help do they provide?"

Here's the short answer: You might get some educational assistance from lenders, but I wouldn't expect much in the way of financial assistance.

These days, I wouldn't expect much assistance from a mortgage lender. It's 2011, and the housing crash is still fresh on our minds. As a result of the foreclosure-related losses they endured, most lenders today have scrapped their first-time buyer mortgage programs. These were programs where the lender offered preferential terms to first-time buyers. Maybe they waived a certain fee or offered to roll the closing costs into the loan. But most of these things are gone.

The Mortgage Lender's Mindset

Mortgage lenders have tightened up every aspect of their businesses, and that included the application and review process. For the most part, you'll be treated like every other home buyer that walks in the door. The only type of mortgage assistance you might get in 2011 would be educational in nature. The lender might have some information guides for first-time buyers, but that's probably about it. So don't expect any special rates or terms on your loan, just because it's your first time buying a house.

I don't mean to sound negative -- just realistic. A lot has changed over the last few years, since the housing crisis came to a head in 2008. In 2011, mortgage lenders are very strict with the types of borrowers they'll accept. So as a first-time buyer, you need to have your finances in order. You need to have good credit, a decent down payment, and a manageable level of debt. These are the most important factors when it comes to getting approved for a mortgage loan.

Getting Assistance from a Housing Counselor

While a first-time buyer won't get much mortgage assistance from a lender, there are still some helpful resources available. You might want to schedule an appointment with a HUD-approved housing counselor. These are financial counselors who have received special training from the Department of Housing and Urban Development, or HUD. They can teach you about the steps to buying a home, the different types of mortgage options you have, how to create a budget for yourself, and more.

Most of this training is either low-cost or free. This is a great starting point for first-time home buyers, because it opens your eyes to the financial reality of buying a house.

You can find a HUD-approved housing counselor in your area on this page of the HUD website. You can also find a list of home-buying programs in your city or state by visiting this section of their site. Both of these are excellent resources for first-time buyers, so I encourage you to explore them.

Look Into the FHA Loan Program

FHA home loans are not limited to first-time buyers. But in many cases, they are ideally suited for such buyers. Here's the FHA program in a nutshell: You apply for the mortgage loan through a lender such as Wells Fargo or Bank of America, or perhaps a local lender in your city or state. The Federal Housing Administration (FHA) insures the loan, so the lender is protected in the event that you default on the mortgage.

Because of this government insurance, lenders are willing to allow certain concessions they normally wouldn't allow. For example, you can make a smaller down payment with an FHA loan -- as little as 3.5% of the purchase price.

This is why so many first-time buyers use this type of mortgage loan. It does have some downsides, such as the extra mortgage insurance you'll have to pay. But it's certainly worth a look.

Look for Grants in Your State

Most home-buying grant programs disappeared when the economy tanked. But there are still a few left. These are programs where qualified buyers get some type of financial assistance from a government institution, a charitable fund, or some other type of organization. Most of the grant programs exist at the local and state level these days. So I recommend you spend some time looking for these program.

Google is the easiest way to find them. Just do a Google search for [your state] +home buying grants. You can also search with your city name instead of the state, and by using the phrase "home buying programs" instead of grants. And don't forget to use the HUD links I offered earlier -- particularly, the one for local home-buying programs.

Learn About Mortgages at the Home Buying Institute

While we do not offer any type of financial mortgage assistance for first-time buyers, we have plenty of educational tools for you. On this website, you'll find a library of home-buying and mortgage articles that number in the thousands. We also have a news blog to help you keep up with current events in the lending industry. If you'd like to learn more about any of the topics discussed in this article, try using the search tool at the top of this page. You're likely to find several articles on your chosen topic. Good luck with your home buying process.