It all begins with an idea and education. Choosing to buy a house, whether for investment or residential purposes is a major life decision. Having an idea of the type of investment and home you want to purchase and learning more about the programs that exist within your state, county, and/or city to help make the home-buying process more affordable is a great first step. The second step is to choose the type of loan and creditor you want, unless, of course, you have the cash to buy your house!
In this blog post, you will learn more about the difference between a FHA and a conventional loan. You can also learn more about federal loan options, as well as the conventional loan options in the state of Maryland.
1 —FHA or Federal Housing Administration Loans
These loans are guaranteed or insured by a government agency called the Federal Housing Administration. These types of loans are repayable in fixed monthly payments with fixed rates and terms (typically not exceeding 30 years) and require a credit score of at least 580. FHA loans can ONLY be used for primary residential home purchases, not real estate investment properties.
An example of an FHA loan is called the 203k loan.
203k loans enable homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home. The cost of the rehabilitation must be at least $5,000. Please click here to learn more about this federal program and here for approved lenders. Lastly, click here to research other FHA loan options.
Another example of an FHA loan is called the Reverse for Purchase loan program.
The Reverse for Purchase loan program only allows individuals who are 65+ and homeowners to purchase a new home and have no monthly mortgage payments. Only taxes and insurance would be due on the new home. These individuals must use the equity on their current home to assist with the down payment for a new home. The new home can exceed the value of their current home whereby there would still be no monthly mortgage payments due.
2 —Conventional Loans
These loans are not backed or insured by government agencies such as the Federal Housing Administration or the Veterans Administration, but these types of loans are repayable in fixed monthly payments with fixed rates and terms (typically not exceeding 30 years) and require a credit score of at least 640. Conventional loans can be used by first-time and repeat home buyers for primary residential and investment purposes, and are loans made through private lenders.
In the state of Maryland, you are considered a first-time home buyer if you have not purchased a property in the last 3 years. Also, in the state of Maryland, there are 7 types of standard (non-specialty) conventional loans you can choose from to help finance your home as a first-time buyer; 3 types of conventional loans you can choose from as a repeat or first-time buyer; and 5 specialty first-time home buyer conventional loan programs. Some of these loans can be combined, and some of these loans have income limits and caps, so please discuss these options with an approved MMP loan officer to understand which loan program would be best for you. Click here to find an approved lender.
Conventional Loan Programs for First-Time Home Buyers ONLY
(as of April 2024)
- MMP First-Time Advantage Direct: Offers eligible first-time homebuyers the lowest 30-year fixed interest rate available from the program for a home loan. (Mortgage credit certificates may not be layered with 1st Time Advantage loans.)
- MMP First-Time Advantage 6000: The 1st Time Advantage 6000 includes a 0% interest, 30-year deferred loan of $6,000 as the second lien. The assistance loan is to be used for the down payment and/or closing costs of the mortgage loan and home purchase at closing. If the $6,000 exceeds the total down payment and closing costs needed for the transaction, the excess funds will be applied by the lender to a principal curtailment.
- MMP First-Time Advantage 3% Loan: The 1st Time Advantage 3% Loan product includes a 0% interest, 30-year deferred DPA loan of 3% of the MMP total loan amount (first lien). The assistance loan is to be used for the down payment and/or closing costs of the mortgage loan and home purchase at closing. If the 3% exceeds the total down payment and closing costs needed for the transaction, the excess funds will be applied by the lender to a principal curtailment. The loan available for this product is strictly 3% and no higher or lower percentages are allowed.
- MMP First-Time Advantage 4% Loan: The 1st Time Advantage 4% Loan product includes a 0% interest, 30-year deferred DPA loan equal to 4% of the MMP total loan amount (first lien). The assistance loan is to be used for the down payment and/or closing costs of the mortgage loan and home purchase at closing. If the 4% exceeds the total down payment and closing costs needed for the transaction, the excess funds will be applied by the lender to a principal curtailment. The loan available for this product is strictly 4% and no higher or lower percentages are allowed.
- MMP First-Time Advantage 5% Loan: The 1st Time Advantage 5% Loan product includes a 0% interest, 30-year deferred DPA loan equal to 5% of the MMP total loan amount (first lien). The assistance loan is to be used for the down payment and/or closing costs of the mortgage loan and home purchase at closing. If the 5% exceeds the total down payment and closing costs needed for the transaction, the excess funds will be applied by the lender to a principal curtailment. The loan available for this product is strictly 5% and no higher or lower percentages are allowed.
- MMP Home Start 6% DPA Loan: The HomeStart 6% Loan product includes a 0% interest, 30-year deferred DPA loan equal to 6% of the MMP total loan amount (first lien). The assistance loan is to be used for the down payment and/or closing costs of the mortgage loan and home purchase at closing. If the 6% exceeds the total down payment and closing costs needed for the transaction, the excess funds will be applied by the lender to a principal curtailment. The loan available for this product is strictly 6% and no higher or lower percentages are allowed.
- Partner Match Programs: Partner Match Programs offer additional down payment and/or closing cost assistance for qualified borrowers utilizing certain Maryland Mortgage Program (MMP) loans. Participating partners assist borrowers who meet the criteria established by the partner. Partner Match funds may be utilized with 1st Time Advantage 6000 or Flex 6000 loans. MMP matches the partner’s contribution dollar-for-dollar up to a maximum of $2,500. The match funds are added to the $6,000 of existing product assistance for a total of $8,500 in a zero percent deferred loan which is repayable when the home is sold or transferred, or when the first mortgage is paid off or refinanced. Partner Match funds can be layered with funds or assistance from other non-MMP programs or jurisdictions.
Conventional Loan Programs for First-Time or Repeat Home Buyers
(as of April 2024)
- MMP Flex Direct: No down payment assistance (DPA) available, but offers our most competitive interest rates available to repeat homebuyers. External sources of DPA may be used.
- MMP Flex 6000 Loan: The Flex 6000 includes a 0% interest loan of $6,000 as the second lien, with repayment deferred for the life of the first mortgage. The assistance loan is to be used for the down payment and/or closing costs of the mortgage loan and home purchase at closing. If the $6,000 exceeds the total down payment and closing costs needed for the transaction, the excess funds will be applied by the lender to a principal curtailment. The base loan available for this product is a flat $6,000 and no higher or lower amounts are allowed. (If applicable, the MMP Partner Match funds are layered onto this loan.)
MMP Flex 3% Loan: The Flex 3% Loan includes a 0% interest DPA loan of 3% of the MMP total loan amount (first lien) with repayment deferred for the life of the first mortgage. The assistance loan is to be used for the down payment and/or closing costs of the mortgage loan and home purchase at closing. If the 3% exceeds the total down payment and closing costs needed for the transaction, the excess funds will be applied by the lender to a principal curtailment. The loan available for this product is strictly 3% and no higher or lower percentages are allowed.
Conventional Specialty Loan Programs for First-Time Buyers ONLY
(as of April 2024)
- Smart Buy Program 3.0: Maryland is one of 2 states in the United States, that allows you to pay off your undergraduate and/or graduate student loans if you purchase a home without having to be an active teacher or healthcare professional. The other state is Illinois. Conversely, Maryland’s Smart Buy 3.0 conventional loan specialty program can ONLY be used for primary residential loans in the state of Maryland. Home buyers must have an existing student debt with a minimum balance of $1,000. Maryland’s SmartBuy 3.0 Program financing provides up to 15% of the home purchase price for the borrower to pay off their outstanding student debt with a maximum payoff amount of $20,000 and requires a minimum credit score of 720. The full student debt for at least one borrower must be entirely paid off at the time of the home purchase; partial loan payment is not permitted under this program. (If a co-borrower also has student debt that can be paid off completely within the 15% maximum, that is permitted.) Lastly, Maryland requires you to use a preferred lender to access the benefits of this program, so click here to view eligible lenders!
- Montgomery Homeownership Program VIII Loan: The Montgomery Homeownership Program’s second lien will be a DPA loan in the form of a zero percent deferred loan. The maximum DPA loan will be 40% of the 1003 borrower income with a maximum total of $25,000 per home; these funds can be used for down payment or closing costs. The DPA loan funds are from Montgomery County and are distributed by the Community Development Administration (CDA). The DPA lien will be in the name of the Maryland Department of Housing and Community Development (“the Department”). The DPA loan will be funded by the lender at closing.
- Montgomery Employee Down Payment Assistance Loan (MEDPAL) Program Loan: The Montgomery Employee Down Payment Assistance Loan (MEDPAL) second lien will be a DPA loan in the form of a zero percent deferred loan. The DPA loan will be a flat $25,000 per home, no more and no less; these funds can be used for down payment or closing costs, with any remainder going toward principal curtailment (no cash back to the borrower). The DPA loan funds are from Montgomery County and are distributed by the Community Development Administration (CDA). The DPA lien will be in the name of the Maryland Department of Housing and Community Development (“the Department”). The DPA loan will be funded by the lender at closing.
- Greenbelt Home Advantage Grant: Greenbelt Home Advantage includes an outright grant of Fifteen Thousand Dollars ($15,000). The grant funds can be used for closing costs and/or down payment for FHA, VA, USDA, FNMA, or Freddie Mac loans. The funds are not repayable. As with all MMP DPA, lenders will advance the funds at closing and the Community Development Administration (CDA) will reimburse the lender after purchase by US Bank.
- HomeAbility Loan: HomeAbility is a 30-year conventional purchase loan for Maryland first-time homebuyers with disabilities, but can only assist disabled borrowers whose income does not exceed 80% AMI per borrower.
3 — Federal Loan Options
If you qualify, you can also choose to select a VA, USDA, or HUD loan to financially assist your home buying or land purchase too.
Continue to read below to learn more!
USDA Loans
A USDA loan is a mortgage backed by the United States Department of Agriculture. It’s for borrowers with low-to-moderate income levels who buy homes in rural or suburban areas. This loan could be helpful to consider if you have dreams of owning farm land. Click here to learn more about program initiatives and eligibility.
HUD Section 8 Voucher Program
The United States Department of Housing and Urban Development (HUD) have a Housing Choice Vouchers Homeownership (HCV) program. This allows low-income families who have been admitted to the HCV program and receive Section 8 assistance to use their voucher to buy a home and receive monthly assistance in meeting homeownership expenses. Click here to watch the HCV webinar. Click here to review HUD’s HCV flyer and lenders click here to get your questions answered. As your realtor, please know that I have completed the HCV webinar and I look forward to assisting all families, the elderly, and persons with disabilities to purchase decent, safe housing in the private market. Serious inquiries should also email Baltimore’s Housing Authority Homeownership Division at [email protected] and Lissa Edgecomb at Baltimore’s Neighborhood Housing Services for the new homeownership counseling course, [email protected].
VA Loans
The Department of Veterans Affairs (VA) offers loan programs to help servicemembers, veterans, and their families buy homes. To learn more about VA loan programs, including whether you might qualify for one, visit the Department of Veteran Affairs website, or call 800-827-1000.