Buying a home is complicated. Being a first time home buyer in Utah adds benefits and challenges to the home buying process. Since first time home buyers represent about a third of all nationwide home sales, this demographic group calls for attention to their unique needs. As a first time home buyer, you might feel concerned about your ability to make the financial commitment necessary to close on a mortgage and move into your first home. With many incentives and grant programs available on the local and national level, you may be able to reduce your costs and better qualify for the home of your dreams.
Why is financial assistance for first time home buyers important?
To buy a home, many current homeowners rely on the equity they have accrued in their existing homes to cover a typical down payment of 10-20 percent for the new homes they want to buy. First time home buyers do not have this luxury. They must come up with that money on their own, which can make it more difficult for them to break into the housing market.
How do FHA loans help first time home buyers?
Since the average price of a home in Utah is about $280,000, making it easier for first time home buyers to cover or decrease the minimum down payment is one of the best ways to help you close a loan on your first home. At $28,000-$56,000, the standard down payment for a Utah home is the likely the biggest expense you will encounter in the home buying process.
The trouble is that these costs have the potential to force many first time home buyers out of the market. The Federal Housing Administration (FHA) uses government funding to guarantee mortgage loans, which lowers the minimum down payment and closing costs. In order to be eligible for an FHA loan, you may be required to:
- have a credit score of 580
- use an FHA-approved lender
- pay for mortgage insurance
- attend a class for housing counseling
With an FHA loan, you can purchase a home with as little as 3.5 percent down payment, as well as lower closing costs. For an average Utah home, this comes out to $9,800 plus closing costs, which is far more reasonable for people who must draw this money out of savings.
What tax breaks are available for first time home buyers?
One of the reasons that homeowners appreciate having a mortgage is that they can take some fairly large tax breaks at the end of each year. The most notable is the mortgage interest deduction, which allows you to deduct from your tax liability the interest you paid on your mortgage. You can turn the interest deduction into a larger credit, if you meet certain income requirements and apply for a mortgage credit certificate from your state when you open your loan. There are other deductions and credits you should take into consideration, as well. For example, as a first time home buyer in Utah, you can withdraw funds from your Individual Retirement Account (IRA) to cover your down payment or closing costs without paying the 10 percent tax penalty.
Am I eligible for Utah home buyer incentives?
Although most incentives designed to help first time home buyers are programs funded by the federal government, there are also local grants that assist Utah buyers in purchasing their first homes. For example, the city of Salt Lake City offers a service to first time home buyers that allows you to obtain a fixed-rate loan with an interest rate as low as 3 percent, with a minimum down payment of $500 or more. To qualify for this program, you must have a minimum household income based on your family size, and a maximum annual income of less than 80 percent of the Housing and Urban Development (HUD) median. Under these guidelines, you may only purchase homes located in Salt Lake City. Once you have been approved for the loan, you receive a conditional title until you have occupied the home for a minimum of 15 consecutive years.
Could I receive assistance for a down payment on Utah homes?
If you want to purchase a home outside of Salt Lake City, many Utah counties offer some degree of down payment assistance program to families in with specific income requirements. The Community Development Corporation of Utah administers a federally-funded program that gives first-time home buyers in Salt Lake County up to $5,000 for a down payment. In Utah county, Provo’s Home Purchase Plus Program provides as much as $20,000 for a down payment or closing costs if you buy a home in certain areas. This assistance comes in the form of an interest-free loan with deferred payments. The benefit of this particular program is that the income maximum limits are higher than for most forms of down payment assistance specific to Utah.
Do home buyer programs exist for rural areas?
The federal government also gives help for buyers looking for a home in rural areas. The United State Department of Agriculture (USDA) offers the Single Family Housing Guaranteed Loan Program for homeowners to build, purchase or renovate qualified homes in specified rural areas across the country. There are restrictions based on income and location, but many areas of Utah are eligible for this loan guarantee program. The USDA does not fund the loan, but guarantees up to 90 percent of the loan for approved lenders. This program provides up to 100 percent funding, which means that you may not need to provide any down payment to get a home loan.
For a first time home buyer in Utah, saving the money to close on a mortgage loan might be the most difficult part of the process. If you take advantage of some of these programs, you could minimize your out-of-pocket expenses and possibly get into a home more quickly.
2 Point Highlight
With many incentives and grant programs available on the local and national level, you may be able to reduce your costs and better qualify for the home of your dreams.
With an FHA loan, you can purchase a home with as little as 3.5 percent down payment, as well as lower closing costs.
