The Borrowing Game
The definition of “first time homebuyer” isn’t always obvious.
In 2011, when my husband and I bought our first home together, we did so with the help of a first time homebuyer program in our area. I had never owned a home before, so that gave me one obvious check in the qualification column. My husband, on the other hand, had owned a couple of homes in the past, but he too qualified for the program because at the time we applied he had not owned any property for a number of years.
In some cases, even a person who has recently owned can qualify for assistance based on first time homebuyer status. Some programs are open those who previously purchased with a spouse but who are now, due to circumstances such as divorce, doing so on their own.
Tip: Read qualification requirements carefully before you write a program off as “not for me.”
It’s probably not as easy as it sounds, but it can be worth the hassle.
In order to qualify for and cash in on the program benefits, my husband and I put in countless hours of research time, filled out tons of paperwork, sat through required classes, waited in lobbies, re-filed paperwork, rushed to last-minute deadlines, jumped through innumerable hoops, crossed our fingers, and held our breath.
It’s not as easy as sitting in a quiet, air conditioned bank, and hoping for a smile from a friendly lender.
In fact, even after we were determined eligible for the program, our real estate agent warned us that some sellers might be turned off by the extra time our program participation could add to the purchase process.
In the end, we got lucky with the help of one zero interest loan and one super low interest loan, neither of which would come due for 15 years, or if we sell or rent our house, whichever comes first. Definitely worth the little annoyances we had to tolerate.
Think of it this way: If you do the math, the money you save with a lower down payment or interest-free loans equals a rather sexy hourly rate for hoop jumping.
There will be strings.
In the first three years of homeownership, my husband and I saw the equity of our home go up by $100K. We had bought at a great time, and it was thrilling to watch our property value increase so quickly.
At one point, when my husband was offered a work opportunity in another state, we briefly considered selling our home. We knew if we did, we’d have to repay loans we weren’t yet paying off through our mortgage. But the equity in our home was enough that we would still come out ahead.
Or so we thought.
When we went back to our paperwork to clarify, we realized we’d missed one crucial point: the equity would not be ours in full for 15 years. For every year we occupied the home (another important distinction), we would get another five percent of the equity. Which meant that, after three years, we owned only $15K of that “extra” $100K. After four years, it would still only be $20K.
Every first time homebuyer program has different eligibility requirements and stipulations, but what they tend to have in common is that they’re set up to revitalize certain neighborhoods or parts of town. Stable homeowners are a key component to revitalization, so the programs are usually set up to facilitate stability, not killer deals for investors.
Luckily for us, the news did little more than make what would have been a hard decision easy.
Suggestion: Don’t sign off on a first-time homebuyers’ program without reading and clarifying the fine print.