Blue house with picket fence
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Many of today’s homebuyers rely on mortgage assistance programs to buy a home. There are more than 2,500 grants and loans programs nationally, with at least two active programs in each state, according to a recent report by the Urban Institute.

The bulk of these assistance programs, however, are geared toward first-time homebuyers. But the term “first-time homebuyer” can be misleading in respect to a majority of these programs. The result is that people who are qualified to apply mistakenly pass up the opportunity for assistance.

In fact, what qualifies as a “first-time homebuyer” under many programs is often someone who hasn’t owned a home in at least three years or more. This distinction can make all the difference to applicants who were homeowners more than three years ago and are back in the market today. Alanna McCargo, vice president for housing finance policy at the Urban Institute, agrees that this can be confusing for some buyers.

“There’s a lot of misperception about what it takes to qualify for these programs. People are confused by income levels, they think they made too much, or they don’t realize that they could have owned a home before to qualify,” McCargo says.

Confusion as to who qualifies can pose problems because, without assistance, millions of families today wouldn’t be able to buy a home.

Barriers to home ownership

Prices are on the rise, new construction for entry-level housing is lagging and inventory is squeezed. Add in stagnant wage growth, increased consumer debt including student loans and an uptick in mortgage rates, and the many hopeful  homebuyers might feel iced out of the market altogether.

The three main barriers to homeownership are down payment, access to credit and affordable housing, according to Urban Institute’s report.

“Affordability for an average family earning a median income has decreased. It’s more expensive. Access to credit is still a problem. So, obviously if you cannot get a loan in this environment, given how expensive homes are, then you cannot buy a house,” McCargo says.

The increase in low down-payment lending is perhaps a reflection of some of the problems Americans are facing. Traditionally, FHA has been the main source of low down-payment lending, but that’s changed in recent years.

Conventional lenders, like Bank of America, as well as Fannie Mae and Freddie Mac have low down-payment programs.

“There’s a greater demand for low down-payment assistance programs because it’s very difficult to save with high rent prices,” McCargo says. “The only way to get them in is to require less cash at the outset.”

The share of FHA and GSE (government-sponsored enterprise) loans for first-time homebuyers continues to increase, according to the report. The combined share for this type of lending for both sources is 60 percent, which is 20 percentage points higher than the average before the mortgage crisis. Additionally, first-time homebuyers are taking out 25 percent more GSE loans than they did in the early 2000s.

Many people who would qualify as first-time homebuyers are previous homeowners, including those who lost their homes in the crisis and are just now getting back on their feet.

First-time homebuyer programs for people who have owned before

These are programs that allow previous homeowners to qualify for programs that are targeted to first-time homebuyers.

HomePath Ready Buyer

• Buyer has not owned a home in three or more years.

Freddie Mac’s HomeOne

• Buyer has not owned a home in three or more years.

Wells Fargo’s Your First Mortgage

• Previous homeowners may qualify for the program.

Be sure to check your state and local housing agencies for additional assistance. You can search programs by state on HUD’s website.

If you’re ever unsure about a program’s qualification requirements, terms and rates, ask your lender to explain it to you and put it in writing whenever possible.

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