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Guide to Getting the Best Rate on Your Mortgage

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Guide to Getting the Best Rate on Your Mortgage

A house is the single largest asset that most Americans will ever buy. The median price of a home sold in the United States is up to $301,300, and the median household income of a homeowner is $60,000. This means that a house now costs more than five times the income of a typical homebuyer.

With prices so high, it’s more important than ever to find a great rate on your mortgage. Finding the lowest rate can save you tens of thousands of dollars over the lifetime of a loan. But finding the best rates on the loans with the right features can be a challenge. In this guide we’ll teach you how to find the best mortgage rates.

Finding the best rate on a mortgage

When it comes to buying a house, you don’t just need to house hunt; you need to shop for a mortgage. According to the Consumer Financial Protection Bureau (CFPB), just 53% of Americans shop for mortgages, but comparing lenders has a huge payoff. Saving 1% on your rate will save you tens of thousands of dollars over the life of your loan. Your mortgage can make or break the affordability of a house, and it’s up to you to find the best rates. These are the steps you can take to find the best rates.

Compare rates using the CFPB’s handy tool

The CFPB offers a tool that allows you to compare the prevailing interest rates on various types of loans. To use the tool, you need to know your credit score, the amount you intend to borrow, and how much money you have for a down payment.

By exploring the different options, you can determine the best rates in your state, and the most common rates.

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This tool will give you an idea of the rate landscape in your state. However, you still need to do work to get the best rates.

Next, find lenders that offer the lowest rates

Once you know the lowest interest rates, you can find the lenders offering those rates through search engine queries. Enter the following formula: “State Mortgage, X% Interest Rate, Loan Type.”

For example, “Alabama Mortgage, 3.75% Interest Rate, 30-Year Fixed Rate.”

The bank or credit union with the best rate should emerge near the top of the search rankings. You will find mortgage comparison websites that will help you connect with the banks. Mortgage comparison websites can be a helpful resource, but they require your contact information. If you use a comparison site, expect to receive phone calls or email solicitations.

Continue to cross-reference the rates from comparison sites with information from the CFPB. The rates on a mortgage comparison site should be as good as those on the CFPB’s site.

If a lender has already pre-approved you, they may be willing to match the lowest rate. Talk with your loan officer about the rate you saw on the CFPB’s website. Ask them to match the rate. If they will, the conversation saves you time and money.

Get pre-approved for a mortgage from multiple banks

Once you find the banks with the best rates, consider getting pre-approved for mortgage rates from a few different banks. A pre-approval means that a bank plans to give you a loan at a given rate. You will need to submit documentation to a loan officer to get pre-approved. Typical documentation includes W-2 forms, tax returns, credit reports, and evidence of assets.

The bank will review your documentation and give you a pre-approval letter. The letter explains how much you can borrow and at what rate. If you’re denied at this stage, you can find out why.

A pre-approval is not a contract. It is not subject to underwriting or an appraisal. Rates can change after you get a pre-approval. That’s why we recommend getting multiple pre-approvals if you can.

When you’re pre-approved, a bank will give you a letter that you can submit with offers on a home. Home sellers want to see a pre-approval letter because it means that you’re likely to have access to the financing to close a deal.

Once you have pre-approvals in hand, start shopping for houses. You can submit a bid and negotiate a price using your pre-approvals.

Request loan estimates from lenders

Once a seller accepts your bid, request loan estimates from all the banks that pre-approved you.

A loan estimate is a three-page document that contains an estimated interest rate, monthly payments, and closing costs for the specific loan. It explains everything you need to know about the loan if you choose to move forward.

Compare all the loan estimates before committing to a particular mortgage lender. Loan estimates allow you a true apples-to-apples comparison of interest rates.

A loan estimate isn’t a contract. The bank may deny the loan based on the home’s appraisal values or due to underwriting problems. But a loan estimate will allow you to make an informed decision.

Factors that influence your interest rate

Shopping for a mortgage isn’t the only way to find the best interest rate. You can influence the rate by controlling these factors.

Credit score

The better your credit history, the better your rate will be. In some cases, the difference can be a full percentage point or more. Fixing your credit score is one of the best ways to influence your mortgage rate. Depending on your credit history, you might be able to fix your credit score on your own within a few months.

When you’re shopping for a mortgage, pay your bills on time and keep your credit usage low. Try to use 10% or less of your total available credit. Don’t close old credit accounts or apply for new accounts when mortgage shopping. These actions promote a high credit score while you shop for a mortgage.

Down payment & PMI

In general a bigger down payment means a lower interest rate.

If you put down at least 5%, you will probably qualify for the lowest advertised rates. But don’t confuse the lowest interest rates with the lowest cost financing. Most banks require you to purchase private mortgage insurance (PMI) if you don’t put at least 20% down on a home. PMI adds about .5%-1% per month on your mortgage. You won’t be able to remove PMI until you’ve built up at least 20% equity in your home. You build equity when your home rises in value and when you pay down your mortgage.

If you have a down payment less than 5%, you’ll need to look at FHA loans or VA loans. VA loans don’t require PMI, but you will have to pay an upfront financing fee. This is a fee that doesn’t help you build equity, but VA loans have competitive rates for people who don’t have a down payment. Check the fee schedule for VA loans to see if the financing fee is worth it to you.

FHA loans require just a 3.5% down payment, but FHA loans have require mortgage insurance premiums (MIP). The MIP is an upfront fee (usually 1.75% of the total mortgage) and monthly interest rate hike of around .5%. You can’t get rid of MIP unless you get rid of your FHA loan.

Location

Buyers looking for a mortgage in a rural area may see higher rates compared to equally qualified buyers in nearby urban areas. Most lenders have less familiarity with lending in rural areas. This leads to higher rates. In rural settings, you may get the best rates from nearby banks and credit unions.

Rates also differ on a state-by-state basis. States that have laws that make foreclosure difficult tend to have higher mortgage rates than states with looser foreclosure laws. Likewise, states that require lenders to have a physical presence in the state raises interest rates.

Loan size

Interest rates on small mortgages (less than $50,000) tend to be higher than rates on typical mortgage sizes. Small mortgages are less profitable than other loans, and many banks won’t issue this size mortgage. Borrowers may need to work with local banks or credit unions or government lending programs to find a micro-mortgage.

At the other end of the spectrum, jumbo mortgages tend to track closely to conforming loan interest rates. Banks can’t sell jumbo loans in the secondary market, so they are riskier for the bank compared to other mortgages. Usually, banks compensate higher risk with higher interest rates. However, the rigorous underwriting on jumbo loans may drive many poor prospects out of the market.

Length of loan (Loan term)

Mortgages with shorter terms have lower rates than those with longer terms. A longer term represents more risk for the bank. Banks compensate their risk with higher interest rates. This doesn’t mean that a shorter term loan is always the right choice. Choose the loan term that fits your needs before you compare rates. That way you’ll get the best interest rate on the right mortgage for you.

Fixed or variable rates

Adjustable-rate mortgages put more risk onto borrowers. You’ll initially pay a lower interest rate if you take out an adjustable-rate mortgage, but the rate might increase.

When you’re considering an adjustable-rate, learn when and how the interest rate adjusts. Most loans adjust based on a set index. In a low interest rate environment, you can expect rates to increase, but you need to guess how much. Weigh whether the low rates now are worth a potential high rate in the future.

Conforming vs. FHA vs. VA vs. conventional

The company that backs your loan may seem unimportant, but it influences your rate.

Conforming loans (those that can be purchased by Fannie Mae or Freddie Mac, the largest purchasers of mortgage loans in the U.S.) tend to have the lowest interest rates. Despite their low interest rates, conforming loans are profitable for banks. Banks can easily sell conforming loans to Fannie Mae or Freddie Mac and reinvest the proceeds in making more loans. Conforming loans require at least a 5% down payment and good credit. For conforming loans, put 20% down to avoid paying PMI.

FHA loans have more lenient down payment and credit standards. They tend to be expensive for well-qualified buyers. However, an FHA loan may be the right option if you have a low down payment or a poor credit score. Only you can determine if the extra cost is worth it for you. VA loans are available to veterans, and they charge an upfront fee. However, they offer competitive rates for first-time homebuyers. If you can qualify for a VA loan, look into it as an option.

Conventional loans can’t be purchased by Fannie Mae or Freddie Mac. They require more shopping around to find the best rates. Not every lender issues conventional loans. If you qualify, the rates should be competitive with rates on conforming loans.

If you’re taking out a jumbo mortgage, you need to qualify for conventional underwriting. Likewise, condo buyers may need to qualify for a conventional loan. Fannie Mae and Freddie Mac will not purchase a mortgage if the property is part of an association that has more than 50% renter occupants.

Buying points

Many lenders offer to let borrowers buy “discount points” off of a mortgage. This means that you pay a set fee in exchange for the lender to lower your rate. In some circumstances buying discount points makes sense. Divide the cost of the point by the change in your monthly payment. This will tell you the number of months it takes for the prepayment to pay off (in terms of savings). If you expect to stay in the house significantly longer than the payoff period, go ahead and purchase the points. Otherwise, pay the higher interest.

Closing costs

An advertised interest rate doesn’t account for your total cost to borrow money. Most banks make their real money by charging closing fees. Banks might charge loan origination fees, recording fees, title inspection fees, underwriting fees, and application fees.

All the financing charges will be disclosed on a loan estimate. The loan estimate will also provide you with an annual percentage rate (APR), which expresses the total cost of borrowing money including the financing fees.

Special programs

Cities and states often issue special interest rates on loans for homebuyers who meet certain criteria. For example, Raleigh, N.C., subsidizes a $20,000 down payment loan for low-income, first-time homebuyers in distressed neighborhoods. Check your city, county, and state websites to see if you qualify for special rate programs. These programs often have favorable borrowing terms in addition to great rates.

Accelerating payments

Some borrowers cut their total interest costs by accelerating their mortgage payoff. If you make a half mortgage payment every two weeks, you’ll make an extra mortgage payment every year. This cuts a 30-year mortgage down to 23 years.

Making extra payments early in the life of your loan will help you achieve 20% equity faster. This will allow you to drop PMI payments or refinance at a lower rate.

Determining a budget for your loan

Finding a great rate on a loan that you can’t pay back is a sure way to destroy your credit. Before you apply for a loan, establish a realistic budget for your monthly mortgage payment. Avoid borrowing more than you can comfortably pay back.

When banks approve you for a mortgage, they will lend based on your current debt-to-income ratio without considering your other costs of living. Lenders have some limits, but you need to establish your own limits. Most of the time, lenders will not extend mortgage loans to borrowers whose monthly debt liabilities eat up more than 43% of their gross monthly income.

To understand debt-to-income ratio, consider this example. A person with a $60,000 annual income and a $500 monthly car payment applies for a mortgage.

A bank will allow them to carry a debt load up to $2,150 per month (($60,000/12)*43%). The bank subtracts the $500 from the maximum allowed debt load and determines that this person can afford $1,650 in house payments each month.

The bank in this example determines that $1,650 a month is an affordable budget.

No matter how large a loan you can get, you need to be a savvy consumer. The Consumer Financial Protection Bureau recommends that your entire housing payment (including taxes, insurance, and association dues) should take up no more than 28% of your gross income.

The CFPB’s advice may seem too strict, but you need to determine your non-mortgage-related cost of living before committing to a new loan. Calculate costs like income taxes, transit expenses, and child care or education costs. If you pay alimony or for out-of-pocket health care, consider those costs too. Plus, you’ll need to factor in the costs of home maintenance. Experts recommend setting aside 1%-3% of your home’s purchase price for maintenance and upgrades.

A 43% debt-to-income ratio may be manageable for people who expect a significant salary bump in the near future. But for many, such a high ratio could get you into credit trouble.

If you’re seriously shopping for houses, use Zillow’s advanced affordability calculator to determine how much mortgage makes sense for you. You can also learn if buying makes financial sense by using the Rent vs. Buy Calculator from realtor.com.

Before you start shopping for houses, determine how a mortgage will fit into your budget. Don’t succumb to pressures to overextend your budget. A burdensome mortgage has the power to turn a dream house into a nightmare. You can avoid the nightmare by planning ahead.

Determining loan features you want

In addition to establishing a budget, you need to understand how to find the right features on a mortgage. A great rate on a bad mortgage could spell financial ruin. When you’re shopping for loans, ask yourself these questions:

How long will you stay in the home?

Some buyers purchase houses with the intention of staying just a few years. Someone who plans to sell in a few years might consider a lower interest rate adjustable mortgage. However, an adjustable-rate mortgage is risky for someone who intends to live in a home long term.

How risky is your financial situation?

Do you and your partner have two steady jobs and a large cash cushion? In such a stable situation, you might feel comfortable putting 20% down. You might also feel good locking into a 15-year mortgage to save on interest.

People with less stable income and finances might feel more comfortable with a smaller down payment and a longer payoff period. This will mean paying PMI and higher financing costs, but they can be worth it for peace of mind.

Do you expect to have better cash flow in the future?

If you think that you’ll have more accessible cash flow in the future, you can borrow near the higher end of your limits today. An interest-only loan will allow you to get into a house with lower payments now and higher payments in the future. Of course, you need to be realistic about your future expectations. Your future income may be more modest than you hope, or you may face high costs in the future. An interest-only loan could leave you trapped in a house if housing prices decline.

Even if you expect a higher income, borrowing near the top end of your budget could keep you “house poor.” If the raise doesn’t pan out, you’ll be stuck in a house that you can’t comfortably afford.

Do you have access to other sources of financing?

Alternative sources of financing like a home equity line of credit make a loan with a balloon payment more viable. Alternative financing means that you’ll have options if your original mortgage payoff plan falls through.

Anyone considering a balloon payment loan should have a solid lead on alternative financing before they take out the loan.

How much cash do you have for a down payment?

You can purchase a house with almost no money down. For example, the Federal Housing Association (FHA) offers “$100 Down” home financing on select HUD homes, or down payments as low as 3.5% for FHA-backed loans. Veterans can purchase homes using $0 down VA loans.

On the other hand, if you have more money to put down, you may qualify for a conventional mortgage or a mortgage backed by Fannie Mae or Freddie Mac. The more cash you have, the more options you have for loan types.

Do you have compelling uses for cash outside of a home down payment?

Putting a large amount of money down on your home locks up the cash. You can access home equity through a home equity line of credit, but that introduces a new element of risk. Even if you have a large amount of cash, you may not want to use it to fund a down payment. For example, you may want to hold cash for an emergency fund, to start a business, or to fund some other purchase.

If you have a compelling reason to hold onto cash, you may intentionally narrow your mortgage search to low down-payment options.

How quickly do you want to pay off your house?

A paid-off home might be your top financial priority. In that case, you might want to look for options with a short payoff period. For example, you might prioritize the forced savings of a 15-year mortgage. You might even aim to payoff a 5/1 ARM before the first rate adjustment if you have sufficient cash.

How important is the monthly payment?

A lot of people prioritize a low monthly payment above any other factor. You can achieve a low payment by avoiding fees (like PMI), finding the lowest possible interest rate, and extending the terms of the loan. Even more important than those factors is borrowing an amount that you can easily afford under most circumstances.

Common mortgage terms

Sometimes the most difficult part about shopping for a mortgage is understanding the terms that lenders use. Below we’ve defined a few of the most common mortgage terms that you should know before you sign a loan.

  • Interest Rate – The amount charged by a lender for a borrower to use the loaned money. This is expressed as a percentage of the total loan amount.
  • APR – The annual percentage rate is the total amount that it costs to borrow money from a lender expressed as a percentage. The APR factors in closing costs and other financing fees.
  • Amortization Schedule – A table that shows how much of each payment goes to the principal loan balance versus the interest portion of the loan.
  • Term – A set period of time over which a fixed loan payment will be due (often 15 or 30 years).
  • Fixed-Rate Mortgage – A mortgage where the interest rate stays the same for the entire term of the loan.
  • Adjustable-Rate Mortgage – A mortgage where the interest rate changes based on factors outlined in the loan agreement. Often, the adjustment is tied to a certain publicly available interest rate like the Federal Exchange Rate. Adjustable-rate mortgages are considered riskier than fixed-rate mortgages due to the potential volatility of payments. Adjustable-rate mortgages (ARMS) include:
    • 1-Year ARM – A mortgage where the interest rate adjusts up to once per year for the life of a loan.
    • 10/1 ARM – A mortgage where the interest rate is fixed for ten years and then increases up to once per year for the remaining life of the loan.
    • 5/1 ARM – A mortgage where the interest rate is fixed for the first five years of the loan and then increases up to once every year for the life of the loan.
    • 5/5 ARM – A mortgage where the interest rate is fixed for the first five years of the loan and then increases up to once every five years for the life of the loan.
    • 5/25 ARM – Also known as the five-year balloon mortgage. A 5/25 loan is a subprime loan with a fixed rate for the first five years of the loan. If a borrower meets certain standards (usually a record of on-time payments), they will receive the right to refinance the remaining 25 years on an adjustable-rate mortgage. Otherwise, the bank requires a “balloon” or remaining balance payment after five years.
    • 3/1 ARM – A mortgage where the interest rate is fixed for the first three years of the loan and then increases up to once per year for the life of the loan.
    • 3/3 ARM – A mortgage where the interest rate is fixed for the first three years of the loan and then increases up to once every three years for the life of the loan.
    • Two-Step Mortgage – A mortgage that offers a fixed interest rate for a fixed period of time (usually 5 or 7 years). After the fixed period, the rate adjusts to current market rates. Often, the borrower can choose either a fixed rate or an adjustable rate during the second step.
  • Interest-Only Mortgage – A mortgage where a borrower pays only the interest on a loan for a fixed period (usually 5-7 years).
  • PMI – Private mortgage insurance is a product that protects a bank if you default on your mortgage. Lenders often require borrowers with less than 20% equity to purchase PMI.
  • Jumbo Mortgage – A mortgage that is larger than the standards for a “conforming loan” set by government-backed agencies. In most parts of the U.S. a jumbo loan must be larger than $417,000. In some of the highest cost of living areas, a jumbo is in excess of $625,000.
  • Fannie Mae – The Federal National Mortgage Association is a government-sponsored enterprise that purchases mortgages that meet certain criteria from banks that issue the mortgages.
  • Freddie Mac – The Federal Home Loan Mortgage Corporation is a government-sponsored enterprise that purchases mortgages that meet certain criteria from banks that issue the mortgages.
  • Conforming Loan – A mortgage that meets the funding criteria of Fannie Mae and Freddie Mac. The most stringent criteria is the loan size.
  • FHA Loan – A loan guaranteed by the Federal Housing Administration. Qualifying standards are not as stringent, but the fees are higher. In addition to a monthly premium (similar to PMI), borrowers pay a “borrowing” premium when they take out the loan.
  • VA Loan – A mortgage guaranteed by the Department of Veterans Affairs. Veterans can purchase houses with a $0 down payment when using a VA loan, provided the veteran meets other lending criteria.
  • Conventional Mortgage – A mortgage that is not guaranteed by any of the federal funding agencies. Certain homes or condominiums will only qualify for a conventional mortgage financing option.
  • Down Payment – The initial payment that a homebuyer supplies when purchasing a home with a mortgage.
  • Balloon Mortgage – A mortgage where a borrower pays fixed payments for a period of time (usually 5 or 7 years) after which the balance of the loan is due. This is considered a high-risk loan.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

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Maine First-Time Homebuyer Programs

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Do you want to live in a state with gorgeous seaside views and fresh lobster? Maine just might be the right place. Whether you’re new to the state or already call it home, if you need help coming up with a down payment, Maine offers several programs designed to help first-time homebuyers make their homeowning dreams a reality.In January of 2019, we researched first-time homebuyer programs in Maine, which included a review of the Maine State Housing Authority website and other state resources. Here’s what first-time homebuyers in Maine need to know.

Maine first-time homebuyer programs

The Maine State Housing Authority administers several federal and statewide programs aimed at providing affordable homeownership for Maine residents.

Their programs provide fixed-rate mortgages and assistance with down payments and closing costs to help put homeownership within reach. Their mortgages also come with payment protection, in the event that buyers face unemployment.

Eligibility for Maine assistance

Homebuyers who wish to take advantage of one of the Maine assistance programs must meet income and purchase-price limitations. Income and purchase-price limits vary, depending on how many people live in your household and the county in which you buy a home. You can find a list of current income and purchase-price limits online.

Eligible properties include new and existing single-family homes, owner-occupied two- to four-unit apartment buildings and condominiums. Manufactured homes located on owned land and built within the last 20 years are also eligible. However, the purchase-price limit for single-wide and double-wide manufactured homes is $150,000.

MaineHousing First Home Loan Program

The MaineHousing First Home Loan Program provides low fixed-interest-rate mortgages with low or no down payments. It can also provide up to $3,500 in assistance with down payments and closing costs.

Features

The First Home Loan Program offers

  • Thirty-year fixed-rate mortgages
  • Low or no down payments
  • Up to $3,500 in down payment and closing cost assistance
  • Low fixed interest rates
  • Low- and no-point options
  • The option to finance between $500 and $35,000 for necessary home improvements in the same loan

Eligibility

In order to participate in the program, you must

  • Have a minimum credit score of 640.
  • Take an approved homebuyer education class before closing if you take advantage of the down payment and closing cost assistance option.
  • Contribute at least 1% of the loan toward the purchase price of your home (the cost of the homebuyer education class counts toward this 1%).
  • Be a first-time homebuyer (not have owned a home within the past three years) or a veteran, retired military or on qualified Active Duty.
  • Meet household income limits, which vary by county and household size.

How it works

The First Home Loan Program is available through a network of approved banks, credit unions and mortgage companies. You can begin the application process by contacting one of more than 40 approved lenders. The lender can help you determine how much home you can afford, decide on the right mortgage program and take you through the process of applying for and closing on the loan.

Learn more

MaineHousing Salute ME & Salute Home Again programs

The Salute ME and Salute Home Again programs help qualified active duty, veterans and retired military personnel achieve homeownership by giving them a 0.25% discount on First Home Loan mortgages.

Features

The Salute ME and Salute Home Again programs offer

  • An additional 0.25% discount on 30-year mortgages offered through the First Home Loan Program
  • Low or no down payments
  • Up to $3,500 in down payment and closing cost assistance
  • Low fixed interest rates
  • Low- and no-point options
  • Option to finance between $500 and $35,000 for necessary home improvements in the same loan

Eligibility

In order to participate in the programs, you must

  • Take an approved homebuyer education class prior to closing if you take advantage of the down payment and closing cost assistance option.
  • Have a minimum credit score of 640.
  • Be on active duty or have been honorably discharged from military service, have served on active duty for 180 days or within a war zone.
  • Use your new home as a primary residence.
  • Meet household income and purchase-price limits, which vary by county and household size.

How it works

MaineHousing programs are available through a network of approved banks, credit unions and mortgage companies. You can begin the application process by contacting one of more than 40 approved lenders. The lender can help you determine how much home you can afford, decide on the right mortgage program and take you through the process of applying for and closing on the loan.

MaineHousing Mobile Home Self-Insured Program

The MaineHousing Mobile Home Self-Insured Program allows manufactured/mobile home buyers to get higher loan-to-value (LTV) mortgages and pay a higher interest rate instead of mortgage insurance premiums (MIPs).

Features

The Mobile Home Self-Insured Program offers

  • Up to 30-year loan terms
  • Down payments as low as 5%
  • Up to $3,500 in down payment and closing cost assistance
  • The option that 3% of the purchase price may come from a seller contribution
  • The option to add up to $35,000 to the loan for repairs

Eligibility

In order to participate in the program, you must

  • Be a first-time homebuyer (not have owned a home in the past three years), have only owned an unattached manufactured/mobile home on leased land, or be a veteran.
  • Pay a maximum of 33% of your income toward housing and have a maximum total debt-to-income (DTI) ratio of 41%.
  • Have a minimum credit score of 640.
  • Meet income limits, which vary by county and household size.
  • Have a maximum purchase price of $150,000.
  • Purchase a single-wide or double-wide manufactured home that is less than 20 years of age and is permanently attached per code at the time of closing.
  • Move into the home as your main residence.
  • Not use more than 15% of the home for a trade or business.
  • Contribute a minimum of 3% toward the purchase of the home.

How it works

MaineHousing programs are available through a network of approved banks, credit unions and mortgage companies. You can begin the application process by contacting one of more than 40 approved lenders. The lender can help you determine how much home you can afford, decide on the right mortgage program, and take you through the process of applying for and closing on the loan.

National first-time homebuyer programs

If you want to buy a home in Maine, you’re not limited to first-time homebuyer programs available through the Maine State Housing Authority. There are other federal programs available to help first-time homebuyers across the country. If you’re interested in learning about national programs, start by checking out LendingTree’s guide to first-time homebuyer programs nationwide.

This article contains links to LendingTree, our parent company.  The information in this article is accurate as of the date of publishing.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Janet Berry-Johnson
Janet Berry-Johnson |

Janet Berry-Johnson is a writer at MagnifyMoney. You can email Janet here

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Rhode Island First-Time Homebuyer Programs

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Buying a new home is a scary prospect — and not just because change can be overwhelming. Figuring out how to afford a down payment, closing costs and monthly mortgage payments can feel like an Olympic gymnastics routine. Luckily, first-time homebuyers in Rhode Island have several programs that can provide assistance.

Whether you’re looking to pay less in taxes or you need help covering a down payment, the state’s solutions may be able to help you. We reviewed the state’s offerings to help you pick the best program for you.

Rhode Island first-time homebuyer programs

Rhode Island Housing offers affordable housing programs designed to make living in the state more attractive and affordable — no matter your financial situation. Not sure how to start your homebuying journey? The organization offers first-time homebuyer education for all buyers to help you understand the ins and outs of this complicated process.

But there’s real money available, too. The programs below offer down payment assistance, tax credits and affordable mortgages. They can even help you avoid paying mortgage insurance.

Eligibility for Rhode Island assistance

All of Rhode Island Housing’s first-time homebuyer programs — except for the First Down Program — require purchasing a house that costs no more than $441,176. Your new home can be a one- to four-unit home or a condominium.

And, of course, you must be a first-time homebuyer.

FirstHomes100

What is it?

Rhode Island Housing’s FirstHomes100 program helps first-time homebuyers at any income level afford a new place. The program combines a traditional mortgage with down payment assistance funds so you can finance your home 100%.

The FirstHomes100 program offers first-time homebuyers

  • One hundred percent financing
  • Assistance with down payment or closing costs through low-interest, 15-year loans
  • The ability to forego mortgage insurance in exchange for a slightly higher interest rate.

Requirements

In order to qualify for the FirstHomes100 program, you must

  • Purchase a house that costs no more than $441,176.
  • Buy a one- to four-unit single-family home or a condominium.

How to apply

If your income is less than $93,623 for a one- or two-person household, or less than $107,667 for a household of three or more, you’ll need to work directly with Rhode Island Housing’s Loan Center. Homebuyers with higher incomes can contact any participating lender to begin the loan application process.

Learn more

FirstHomes100+

What is it?

FirstHomes100+ is the sister program of FirstHomes100. It allows first-time homebuyers to not just purchase but also renovate the home of their dreams. Once buyers are approved for a FirstHomes100 mortgage, they’ll work with a consultant from the U.S. Department of Housing and Urban Development (HUD) to determine what repairs are needed. Once the final costs are determined, and if they exceed $5,000, the loan will become an all-inclusive FirstHomes100+ loan.

FirstHomes100+ provides buyers with

  • One hundred percent financing to buy and renovate the home of their choice.
  • Assistance with down payment or closing costs through low-interest, 15-year loans.
  • The ability to forego mortgage insurance in exchange for a slightly higher interest rate.

Eligibility

To be eligible for FirstHomes100+, first-time buyers must

  • Purchase a house that costs no more than $441,176 and that requires a minimum of $5,000 in renovations.
  • But a one- to four-unit single-family home or a condominium.
  • Complete FHA 203(k) Homebuyer Education before closing.

How it works

Buyers with incomes of less than $93,623 for a one- or two-person household or less than $107,667 for a household with three or more people will work directly with Rhode Island Housing’s Loan Center. If your income is higher, you can contact any participating lender to apply for the program directly through them.

Learn more

FirstHomes Tax Credit

What is it?

The FirstHomes Tax Credit is a federal tax credit for part of the mortgage interest you pay in a given year. A tax credit directly reduces the tax amount you owe. You can claim the tax credit every year, making this program helpful for years to come. Reduce your taxes even further by itemizing and deducting any other mortgage interest you’ve paid.

The FirstHomes Tax Credit offers buyers

  • A mortgage credit certificate for 20% of the total mortgage interest you pay each year.
  • Maximum credit of $2,000 a year.

Requirements

To be eligible for the FirstHomes Tax Credit, buyers must

  • Purchase a house that costs no more than $441,176.
  • Be buying a one- to four-unit home or a condominium.
  • Plan to live in the home as their primary residence.
  • Have income of less than $93,623 for a one- or two-person household, or less than $107,667 for a household of three or more.
  • You don’t have to be a first-time homebuyer if you live in the federally targeted areas of Central Falls, Pawtucket, Providence and Woonsocket.

How to apply

Ready to get started? Get in touch with Rhode Island Housing’s Loan Center or reach out to any of the approved lenders.

Learn more

First Down Program

What is it?

The First Down Program helps first-time homebuyers in the counties most affected by the recent foreclosure crisis. Through this program, buyers receive down payment assistance in the form of a second mortgage. As long as you live in the house full-time for five years, the assistance is forgiven. If you sell, refinance or no longer use the property as your primary residence, you’ll need to repay part of the loan.

The First Down Program offers buyers

  • A forgivable down payment assistance loan of $7,500.

Requirements

To be eligible for this down payment assistance program, first-time buyers must

  • Treat the home as their primary residence.
  • Purchase a home that costs no more than $454,250.
  • Be buying a one-to-four-unit home or condo.
  • Live in Cranston, Pawtucket, Providence, Warwick or Woonsocket counties.
  • Have income of less than $93,623 for a one- or two-person household, or less than $107,667 for a household with three or more people.

How to apply

Funds for this program are limited. Reach out to Rhode Island Housing’s Loan Center or a participating lender to get started.

Learn more

National first-time homebuyer programs

Rhode Island offers several helpful programs for first-time homebuyers, but buyers in the state should consider looking to nationwide programs, too. These programs can help you find an affordable mortgage, down payment and closing cost assistance, and federal tax credits.

LendingTree’s guide to first-time homebuyer programs can help you find the solution that works best for you.

This article contains links to LendingTree, our parent company.  The information in this article is accurate as of the date of publishing.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Wiebe
Jamie Wiebe |

Jamie Wiebe is a writer at MagnifyMoney. You can email Jamie here

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