How to Take Advantage of Your City's First-Time Buyer Program

Most recent college graduates don't even start thinking about buying their first home for about a decade after graduation. That's according to recent data from National Association of Realtors showing that the average age for first-time home buyers is 32. And for the first year after she graduated, Ari Robbins was no exception. That is until she heard about Columbia, SC's City Lender Program, a low-interest, low-downpayment loan designed to make owning a home in the city more attainable for first time home buyers. 

"My boss told me about the program during my annual review," Robbins said. "The program has an income cap, so he was encouraging me to look into it before my salary got high enough to disqualify me."

The first-time buyer program in Columbia is only available to residents in a certain income bracket. It's essentially a way to ensure that these are truly first-time buyers who would not otherwise be looking for a home as opposed to real estate investors. 

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After her meeting, Robbins tentatively began the search by scouring Zillow and keeping a color-coded spreadsheet with anything that piqued her interest. Although she was hesitant at first, the more she thought about the program, the more she liked the idea. 

"My boss talked to me about retaining as much of my current savings as possible because that cushion is harder to build in the future," Robbins said. "So, the fact that I only had to put $2,000 down and didn't have to wipe out all my savings was very attractive to me."

In Robbins' case, the program offered a blended mortgage. The loan from the city covered 20 percent of her total cost and came in at a lower interest rate than market price, which would make her monthly mortgage payment smaller than if she used a purely commercial loan. In Columbia, a loan applicant works with both a loan officer from the city of Columbia who then matches you with a commercial lender who they have a partnership with. The city loan officer will forward all your important information on, so while you're essentially getting two loans, you're only going through one application process. 

Preparing for the first-time buyer program

Columbia, SC isn't the only city that has a first-time buyer program. In fact, you'll be able to find similar programs in cities and states across the country. Although each is unique, there are some things you should expect from each program. 

In order to participate in your city's first-time buyer program, you may have to take an online homeownership course to help you understand how to improve your credit, budget for your home, and successfully pay your mortgage each month. In most cases, the home will also need to be your primary residence until you pay off the first-time buyer loan. Typically once that's done, you'll be free to use the property as a rental if you choose. Since you're not putting 20% down, you may have to pay private mortgage insurance as well.

Applying for any mortgage loan means a lot of paperwork. You can get a head start by gathering some of your financial documents before you meet with a loan officer. At a minimum, you'll need:

  • Current pay stubs
  • W2s
  • Bank statements
  • Asset statements
  • Credit report
  • Drivers license, passport, or another document to prove your identity  

Don't forget about closing costs

A city's first-time buyer program can be a great way to become a homeowner without breaking the bank. But don't forget that a down payment isn't the only cost associated it with buying a home. 

"No one told us about closing costs," Robbins said. "So, that was fun to find out about it. I was able to cover it with my savings, but it was hard to say goodbye to all that money."

Closing costs are usually between 2% and 5% of your home's total cost and cover things like your home's appraisal, your lender fees, and any legal fees associated with your sale. When you're buying a home, everything is negotiable and your Realtor may be able to ask the seller to pay for these costs. But if you're in a seller's market or if you're asking the seller to make a lot of other repairs, your seller might not be willing to cover those costs. 

Find a first-time buyer program 

Using a first-time buyer program can be a great way to buy your first home and begin building equity. Start by searching on your city's website or by contacting a city representative to see what's available in your area. If that doesn't get you a response, you can contact a local real estate agency or mortgage lender. These types of organizations work with all types of buyers and loans and might even be able to tell you about other programs that will benefit you. 

You can also find federal programs as well as programs aimed at buyers with student loan debt

Taking out a mortgage can be scary for a lot of young people, but Robbins warns people her age not to be too wary of these types of programs. 

"It's also surprising what a great deal this is. I think a lot of people my age are skeptical of financial institutions so they don't want to take out a big loan," Robbins said. "But the fact that it's so good doesn't mean there's a catch, it's just the city investing in human capital."