Real estate competition has been brewing in the Buckeye State, as everywhere else.
The median sales price for a home in Ohio rose to $221,900, or 11% year-over-year, as of April 2022, according to Redfin. Buyers who hear Columbus calling face an even bigger surge of 16.3% compared with last year, for a median selling price of $268,000 in April.
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Things can look a bit intimidating for first-time homebuyers in Ohio in 2022. Don’t fret, though, as home affordability may be more within your means than you think.
The Ohio Housing Finance Agency (OHFA) offers a variety of programs for low- and moderate-income first-time and repeat homebuyers meant to help them achieve homeownership.
4 Ohio Programs for First-Time Homebuyers
OHFA offers four first-time homebuyer assistance programs that can be used in tandem with a 30-year fixed-rate FHA, VA, USDA, or conventional mortgage loan.
The benefits from these programs come in the form of down payment assistance, a discounted rate, and a tax credit. Here are the basics of each program.
1. Your Choice Down Payment Assistance
OHFA will forgive the assistance after seven years if you don’t sell or refinance the home. If you sell or refinance before seven years are up, you will be required to repay all assistance provided.
2. Ohio Heroes
Qualifying sectors include:
- Veterans, active-duty military, reserves, and surviving spouses
- Police officers and professional and volunteer firefighters
- EMTs and paramedics
- Physicians, nurse practitioners, nurses, and state-tested nursing assistants
- Teachers, administrators, and counselors (preK-12)
3. Grants for Grads
Eligible degrees include the following:
- Associate’s degree
- Bachelor’s degree
- Master’s degree
4. Mortgage Tax Credit
If you use the tax credit with a different mortgage option from your lender, the tax credit percentage will be smaller.
There are fees associated with applying for and receiving a mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh the fees.
Who Is Considered a First-Time Homebuyer in Ohio?
The OHFA considers you a first-time homebuyer if you meet any one of the following:
- You have not owned a primary residence in the last three years
- You are an honorably discharged veteran
- You are purchasing a home in a target area
In addition, like all OHFA-qualified borrowers, you will need to:
- Meet the county-specific income and purchase price limits
- Have a credit score of 640+ for conventional, USDA, and VA loans
- Have a credit score of 650+ for FHA loans
- Meet debt-to-income ratios for loan type
- Buy a qualifying property type (up to four-unit residential properties, modular homes, and manufactured homes)
- Take a free homebuyer education course
Recommended: The Guide to First-Time Home Buying
How to Apply to Ohio Programs for First-Time Homebuyers
If you want to participate in OHFA’s first-time homebuyer programs, you’ll need to go through the following steps to find and apply for a loan. Don’t worry; it’s almost exactly the same process as applying for a conventional home loan. The main caveat is that your mortgage lender must work with the OHFA.
Step 1: Find a Participating Lender
Not all banks fall under the umbrella of OHFA-approved lenders. You can find participating mortgage
lenders on the website.
Make sure you find a lender that works in the target county where you’re trying to buy. Most large local financial institutions typically show up as participants in the program.
Getting pre-approved for a mortgage will show you the size of the loan you’d likely qualify for, and the interest rate.
Step 2: Find an Agent and a Home
A real estate agent can help you find a home in your price range and ensure that the property meets OHFA income and sales price limits.
The OHFA may offer additional incentives for buyers of homes located in challenged “targeted areas.”
Step 3: Take the Homebuyer Education Course
The OHFA requires all first-time homebuyers participating in its programs to complete a free homebuyer education course (the sole exception being mortgage tax credit basic buyers).
You can complete the course directly through the website, free of charge.
Keep in mind that while it’s recommended that you complete the online education course in advance, the homebuyer education isn’t technically complete until after you’ve submitted a formal loan application through your lender.
Step 4: Get an Offer Accepted and Finalize Your Loan Application
Think of all the different types of homes out there, from condo to townhouse and single-family home, your budget, school districts, and wants and needs.
Once you make an offer and the home seller has accepted it, you can move forward with finalizing your mortgage application. Your lender will work with you to coordinate a target closing date and verify that all underwriting and OHFA requirements are met.
Your loan officer will advise you on how final OHFA benefits will be disbursed in accordance with which first-time homebuyer program you qualified for.
Federal Programs for First-Time Homebuyers
The OHFA’s first-time homebuyer program includes perks, but higher earners and others will not qualify.
Several federal government programs are designed for people who have low credit scores or limited cash for a down payment.
The mortgages are generally for single-family homes, two- to four-unit properties that will be owner occupied, approved condos, townhomes, planned unit developments, and some manufactured homes.
Federal Housing Administration (FHA) Loans
Gift money for the down payment is allowed from certain donors and will be documented in a gift letter for the mortgage.
FHA loans always require mortgage insurance: a 1.75% upfront fee and annual premiums for the life of the loan, unless you make a down payment of at least 10%, which allows the removal of mortgage insurance after 11 years. You can learn more about FHA loans in general and FHA lending limits by area. If you go through the OHFA for an FHA loan, the agency indicates that 650 is the minimum credit score allowed.
Freddie Mac Home Possible Mortgages
The Home Possible mortgage is for buyers who have a credit score of at least 660.
Once you pay 20% of your loan, mortgage insurance will be canceled, which will lower your mortgage payments.
Fannie Mae HomeReady Mortgages
For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site.
Fannie Mae Standard 97 LTV Loan
Department of Veterans Affairs (VA) Loans
The OHFA offers VA loans under its umbrella.
Native American Veteran Direct Loans (NADLs)
U.S. Department of Agriculture (USDA) Loans
The USDA also directly issues loans to low- and very low-income people. For loan basics and income and property eligibility, head to this USDA site.
HUD Good Neighbor Next Door Program
Ohio First-Time Homebuyer Stats for 2022
Ohio Realtors publishes an annual profile of homebuyers in Ohio. Here’s a summary of first-time homebuyer characteristics based on the latest data.
- Median home price purchased by first-time buyers: $122,000
- Percent of all buyers who are first-time homebuyers: 37%
- Median household income of first-time homebuyers: $61,000
- Average age of first-time homebuyers: 35
Additional Financing Tips for First-Time Homebuyers
In addition to federal and state government-sponsored lending programs, there are other financial strategies that may help you become a homeowner. Some examples:
- Traditional IRA withdrawals. The IRS allows qualifying first-time homebuyers a one-time, penalty-free withdrawal of up to $10,000 from their IRA if the money is used to buy, build, or rebuild a home. The IRS considers anyone who has not owned a primary residence in the past three years a first-time homebuyer. You will still owe income tax on the IRA withdrawal. If you’re married and your spouse has an IRA, they may also make a penalty-free withdrawal of $10,000 to purchase a home. The downside, of course, is that large withdrawals may jeopardize your retirement savings.
- Roth IRA withdrawals. Because Roth IRA contributions are made with after-tax money, the IRS allows tax- and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. You may also withdraw up to $10,000 in earnings from your Roth IRA without paying taxes or penalties if you are a qualifying first-time homebuyer and you have had the account for five years. With accounts held for less than five years, homebuyers will pay income tax on earnings withdrawn.
- 401(k) loans. If your employer allows borrowing from the 401(k) plan that it sponsors, you may consider taking a loan against the 401(k) account to help finance your home purchase. With most plans, you can borrow up to 50% of your 401(k) balance, up to $50,000, without incurring taxes or penalties. You pay interest on the loan, which is paid into your 401(k) account. You usually have to pay back the loan within five years, but if you’re using the money to buy a house, you may have up to 15 years to repay.
- State and local down payment assistance programs. Usually offered at the regional or county level, these programs provide flexible second mortgages for first-time buyers looking into how to afford a down payment.
- The mortgage credit certificate program. First-time homeowners and those who buy in targeted areas can claim a portion of their mortgage interest as a tax credit, up to $2,000. Any additional interest paid can still be used as an itemized deduction. To qualify for the credit, you must be a first-time homebuyer, live in the home, and meet income and purchase price requirements, which vary by state. If you refinance, the credit disappears, and if you sell the house before nine years, you may have to pay some of the tax credit back. There are fees associated with applying for and receiving the mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh these fees.
- Your employer. Your employer may offer access to lower-cost lenders and real estate agents in your area, as well as home buying education courses.
- Your lender. Always ask your lender about any first-time homebuyer grant or down payment assistance programs available from government, nonprofit, and community organizations in your area.
If you’re a first-time homebuyer in Ohio, discounted-rate mortgage programs and down payment assistance are available to help make your home purchase more affordable in today’s tough market.
If you don’t qualify for those programs, you might want to further investigate government-backed loans and conventional loans.
Should I take first-time homebuyer classes?
Do first-time homebuyers with bad credit qualify for homeownership assistance?
Is there a first-time homebuyer tax credit in Ohio?
The tax credit percentage will dip to 30% and below for the state’s basic mortgage tax credit program.
Is there a first-time veteran homebuyer assistance program in Ohio?
Ohio Heroes offers a reduced mortgage rate; down payment assistance can be added.
What credit score do I need for first-time homebuyer assistance in Ohio?
What is the average age of first-time homebuyers in Ohio?
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