Thinking of buying a home in the land of lobster and lighthouses? Prices in general lingered below the U.S. median toward mid-year.
Maine home sale prices rose 13.2% from May 2021 to May 2022, according to Redfin, which tracks real estate trends. The median price was $348,600, compared with the national median of $430,700.
Over that same period, the number of homes for sale in the Pine Tree State dropped drastically, by 34%, and 60% of homes sold above their list price. With lower inventory and higher prices, how can a first-time homebuyer compete? Mainers of low to moderate income can look into programs that pair a mortgage with down payment assistance.
This home buying guide is designed with the first-time buyer in mind.
Who Is Considered a First-Time Homebuyer in Maine?
A first-time homebuyer in Maine or elsewhere doesn’t actually have to have never bought a home; they just must have had no ownership interest in a primary home in the past three years.
The U.S. Department of Housing and Urban Development (HUD) also includes:
• A single parent who has only owned a home with a partner while married
• A displaced homemaker who has only owned a home with a spouse
• Someone who has owned a principal residence not permanently affixed to a permanent foundation
• Someone who has only owned a property that wasn’t in compliance with state, local, or model building codes
3 Maine Programs for First-Time Homebuyers
Here are a few of the programs that offer low-interest mortgage loans or down payment and closing cost assistance to first-time homebuyers in Maine.
Active-duty military members and veterans should know that the Maine housing authority waives the first-time homebuyer requirement for them, and MaineHousing provides a 0.25% interest rate reduction on a mortgage.
1. MaineHousing: First Home Loan Program
You may be eligible for a loan that requires little or no down payment with MainHousing’s First Loan Program, which offers an FHA, USDA, VA, or conventional 30-year fixed-rate mortgage (except a manufactured home’s age determines the loan term, from 20 to 30 years).
The minimum FICO® credit score is 640, and maximum debt-to-income ratio, 43% (though a lower credit score and 45% DTI will be considered case by case).
Household income and purchase price limits apply.
With this program you can buy:
• New and existing single-family homes
• Owner-occupied two- to four-unit properties
• Permanently attached manufactured homes built within the last 20 years
To apply, contact an approved lender .
2. MaineHousing: Advantage Down Payment Program
Need help with your down payment or closing costs? This program can provide $5,000 in cash toward those needs when paired with a First Home mortgage.
To qualify, you must take a homebuyer education class and contribute at least 1% of the loan.
To apply, contact an approved lender .
3. MaineHousing: Multi-Unit Advantage
This program provides closing cost and down payment assistance per unit for a one- to four-unit property. Here’s how much you can get:
• 1 unit: $5,000
• 2 units: $8,000
• 3 units: $11,000
• 4 units: $14,000
The same eligibility criteria and income/purchase price limits as First Home apply. You must complete a landlord education course as well as a homebuyer education class, and contribute at least 1% of the loan.
An approved lender can get you started.
How to Apply to Maine Programs for First-Time Homebuyers
To apply for any of the above programs, contact a MaineHousing-approved lender. A participating lender can help determine how much home you can afford and identify any credit issues you may need to work on.
A home affordability calculator can also help you estimate what you can afford.
Recommended: Understanding the Different Types of Mortgage Loans
Federal Programs for First-Time Homebuyers
Several federal government programs are designed for people who have low credit scores or limited cash for a down payment.
Although most of these programs are available to repeat homeowners, like state programs, they can be especially helpful to people who are buying a first home or who haven’t owned a home in several years.
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
The FHA, which is part of the U.S. Department of Housing and Urban Development (HUD), insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders that participate in the program. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers with FICO® credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.
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 in Massachusetts by county on the HUD website.
Freddie Mac Home Possible Mortgages
Very low- and low-income borrowers may make a 3% down payment on a Home Possible® mortgage. These loans allow various sources for down payments, including co-borrowers, family gifts, employer assistance, secondary financing, and sweat equity.
The Home Possible mortgage is for buyers who have a credit score of at least 660.
Once you pay 20% of your loan, the Home Possible mortgage insurance will be canceled, which will lower your mortgage payments.
Fannie Mae HomeReady Mortgages
Fannie Mae HomeReady® Mortgages allow down payments as low as 3% for low-income borrowers. Applicants generally need a credit score of at least 620; pricing may be better for credit scores of 680 and above. Like the Freddie Mac program, HomeReady loans allow flexibility for down payment financing, such as gifts and grants.
For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site.
Fannie Mae Standard 97 LTV Loan
The conventional 97 LTV loan is for first-time homebuyers of any income level who have a credit score of at least 620 and meet debt-to-income criteria. The 97% loan-to-value mortgage requires 3% down. Borrowers can get down payment and closing cost assistance from third-party sources.
Department of Veterans Affairs (VA) Loans
Active-duty members of the military, veterans, and eligible family members may apply for loans backed by the Department of Veterans Affairs. VA loans, to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. For most applicants, there is a one-time funding fee that can be rolled into the mortgage.
Native American Veteran Direct Loans (NADLs)
Eligible Native American veterans and their spouses may use these no-down-payment loans to buy, improve, or build a home on federal trust land. Unlike VA loans listed above, the Department of Veterans Affairs is the mortgage lender on NADLs. The VA requires no mortgage insurance, but it does charge a funding fee.
U.S. Department of Agriculture (USDA) Loans
No down payment is required on these loans to moderate-income borrowers that are guaranteed by the USDA in specified rural areas. Borrowers pay an upfront guarantee fee and an annual fee that serves as mortgage insurance.
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
This program helps police officers, firefighters, emergency medical technicians, and teachers qualify for mortgages in the areas they serve. Borrowers can receive 50% off a home in what HUD calls a “revitalization area.” They must live in the home for at least three years.
First-Time Homebuyer Stats for 2022
Here’s some data about Maine home sales.
• Median home sales price in Maine (May, Redfin): $348,600
• 3% down payment: $10,458
• 20% down payment: $69,720
• Average credit score in Maine (compared with U.S. average of 714):727
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. After reading up on how to choose a mortgage term, check out these tips on how to lower your mortgage payment:
• 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.
Use this home affordability calculator to see how much you can afford to pay for a home.
First-time homebuyers in Maine may be able to qualify for mortgages paired with down payment assistance. Other first-time buyers can shop for a mortgage that suits their needs among the wide world of home loans.
Should I take first-time homebuyer classes?
Yes! Good information is key to a successful home-buying experience for anyone, but especially for newcomers, who can easily be overwhelmed by the jargon, technicalities, and magnitude of applying for a mortgage and purchasing a home. First-time homebuyer classes can help. Indeed they are required for many government-sponsored loan programs.
Do first-time homebuyers with bad credit qualify for homeownership assistance?
Often they do. Many government and nonprofit homeowner assistance programs are available to people with low credit scores. And often, interest rates and other loan pricing are competitive with those of loans available to borrowers with higher credit scores. That said, almost any lending program has credit qualifications.
Is there a first-time homebuyer tax credit in Maine?
No, according to the latest information. Housing finance agencies add and eliminate programs regularly. Your lender will inform you if you qualify for a mortgage credit certificate, with which you can claim a portion of your annual mortgage interest paid as a tax credit of up to $2,000.
Is there a first-time veteran homebuyer assistance program in Maine?
MaineHousing waives the first-time buyer requirement for veterans and provides a mortgage rate reduction.
What credit score do I need for first-time homebuyer assistance in Maine?
The MaineHousing programs list a minimum credit score of 640.
What is the average age of first-time homebuyers in Maine?
If Mainers mirror their brethren nationwide, the median age is 33.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi. Equal Housing Lender.
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi for more information.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
More from MediaFeed:
Home foreclosure rates are on the rise in these states
Featured Image Credit: DepositPhotos.com.