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Pennsylvania First-Time Homebuyer Guide

Dreaming of buying your first home in Pennsylvania but are put off by the costs? As a first-time homebuyer, you could be able to access thousands of dollars in down payment assistance to bring your dream of homeownership into reality. Read on to learn more about the benefits of being a first-time buyer in Keystone State and how Pennsylvania supports its buyers with assistance and loan programs.

Benefits of Being a First-Time Homebuyer in Pennsylvania

First-time homebuyers in Pennsylvania have several benefits, including the following.

• Forgivable down payment assistance: Buyers who are approved for a K-FIT loan may be able to access up to 5% of their home's purchase price in forgivable down payment assistance. Depending on your loan qualification, this program could cover 100% of the required down payment to buy your first home.
• More affordable average home price: In 2023, the average home price in Pennsylvania is $257,511. To purchase the average home using a Conventional mortgage loan, you could need as little as $7,700 down – something that can't be said in all states, where average prices may be double that of PA.
• USDA loan eligibility: Large portions of Pennsylvania located between Pittsburgh and Philadelphia are classified as rural by the United States Department of Agriculture (USDA). You may be able to buy a home in one of these areas with 0% down if you qualify for a USDA loan.

Residents of the Keystone State also have access to additional federally-backed loan programs, including Federal Housing Administration (FHA) loans and United States Department of Veterans Affairs (VA) loans.

Qualifications for First-Time Homebuyers in Pennsylvania

The Keystone State uses the Department of Housing and Urban Development (HUD) definition of a first-time homebuyer when it comes to loan qualification. Under this definition, you may qualify if you haven't held an ownership interest in a property in the last three years. This means that if you previously owned a home and sold it more than three years ago, you could still qualify for first-time homebuyer assistance programs.

Questions to Ask Before Buying Your First House in Pennsylvania

Buying a home can be a solid long-term investment because residential properties across the United States have historically risen in price over time. While making the jump from renting to buying might make sense for you, it's important to enter the market at the right time.

Be sure to ask yourself the following questions before moving ahead with loan preapproval.

1. What are Your Personal Long-Term Goals?

When deciding if now is the right time to buy a home, first think about how owning a home could help or hurt your current goals. For example, if your main goal right now is to progress in your career at a particular company, owning a home could allow you to build equity while also securing housing for the long term. However, if your goal is to find the right career or city for your personality, the flexibility of renting could be preferable for the time being.

2. What is Your Financial Situation?

Some renters compare the monthly price of a mortgage payment to their monthly rental income and assume that they can afford a home if the mortgage payment is lower. While this may be the case, it's not appropriate to assume that your premium is the only cost associated with homeownership. Some new expenses you might need to cover after becoming a homeowner may include:

• Homeowners Insurance
• Private mortgage insurance
• Repair expenses associated with your new property
• Maintenance costs
• Property taxes

Maintaining a household emergency fund following your home purchase is essential to ensure that you will be able to cover expenses that might pop up after closing on your loan. Our mortgage calculator can give you a rough idea of how much you should expect to pay per month as a homebuyer in your current market.

3. What are Your Housing Needs?

Next, consider your current housing needs and how your needs might change in the future. For example, if you hope to grow your family one day, you might want to look for a larger home with more bedrooms than you currently need. You should also consider factors like:

• Preferred housing style
• Distance to public transportation
• Amenities
• Square footage
• Other features on the property like fencing or a garage
• Local property taxes

It can be helpful to create a list of characteristics that you would like your ideal home to have. If you decide that now is a good time to shop, your real estate agent can use this list to help recommend properties for you.

4. What is the Real Estate Market Trend?

Real estate markets are constantly changing and entering the market at the right time could help you build home equity faster. Visit a local real estate database online and track how the prices of homes in your area are changing over time. You may also want to bookmark a mortgage interest rate page to monitor how average loan rates are changing as well. Entering the market at a time when prices or rates are especially low can potentially end up saving you thousands of dollars by the time you own the property in full.

5. What are Your Mortgage Options?

As a first-time homebuyer, you have two major home loan options: government-backed mortgage loans and Conventional loans. Government-backed loans have protections from a branch of the federal government, making them less risky to issue on the side of the lender. As a result, these loans usually have more lenient debt or credit score requirements compared to Conventional loans.

Know your credit score and calculate your debt-to-income ratio before exploring which types of loans you might qualify for. If your score is below 500 points, you will likely have a hard time securing loan financing. You may want to take some time to build great credit habits and improve your score before applying for a loan to access the best possible rates.

First-Time Homebuyer Statistics in Pennsylvania

• Average home price in Pennsylvania: $257,511

• Minimum down payment in Pennsylvania: 0% (USDA and VA loans), 3% (Conventional loans), 3.5% (FHA loans)

How to Apply for First-Time Homebuyer Loan Programs in Pennsylvania

Now that you understand the basics of how a mortgage loan works, you may want to consider applying for your first home loan. Follow these steps to get started.

1. Determine Your Budget

Before you apply for a mortgage loan, be sure that you're financially able to support your purchase. Use the mortgage calculator above to set a rough budget for your monthly payment and look at how this compares to current prices in your area. If the market is in a good place for buyers and your finances look consistent, it might be a good time to get pre-approved for a loan.

2. Get Pre-Approved for a First-Time Home Mortgage

Once you have a rough idea of a budget for your home shopping and you know now is a good time to get a loan, you might want to apply for loan pre-approval. A mortgage pre-approval is a tentative agreement from a lender to finance your home purchase based on underwriting. Your pre-approval letter will include a dollar amount that you're approved for financing, which gives you a budget to use as you shop.

You can also use this time to consider applying for one of Keystone State's down payment and closing cost assistance programs, all issued through the Pennsylvania Housing Finance Agency (PHFA).

• Keystone Advantage Assistance Loan Program: This loan program provides up to $6,000 or 4% of your home's value in down payment and closing cost assistance. This assistance is offered as a 0-interest second mortgage.
• Keystone Forgivable in Ten Years Loan Program (K-FIT): The K-FIT offers up to 5% of your home's appraised value in down payment assistance issued as a forgivable second mortgage. To qualify for loan forgiveness, you must plan to live in your home for at least 10 years.

To qualify for these assistance programs, you must use a Keystone Home loan from the PFHA to buy your home. Each loan program also has its own set of qualifications related to liquid assets and credit scores.

3. Hire a Real Estate Agent

Next, it's time to enlist the help of a real estate agent to assist in your home search. While no law in Pennsylvania says that you must have a real estate agent to buy a home, agents can be invaluable resources in accessing properties that fit your needs. Some agents may have access to listings that have not yet made it to online real estate databases.

Not sure where to start looking for an agent? Word-of-mouth reviews may be one of the most reliable ways to find local real estate professionals, but NAF Homes',* an affiliate of NAF, advanced real estate network can also make it easy to connect with a local agent.

4. Start the Search for Your Dream Home

Most buyers consider the home search to be the most fun part of the buying process, but it's important to approach the search with a plan. Create a list of ideal features that your property must have, as well as a list of things that you'd like to have but that aren't absolute necessities. You and your agent will connect over your needs, likes, and dislikes, and they will create a list of properties to tour with you until you find your dream home.

5. Make an Offer

Once you find a property that fits your needs, it's time to submit an offer letter. An offer letter is a formal offer to purchase a home from a property owner and includes important details like the sale purchase price, buyer information, and information on how you plan to finance the home. The seller can accept the offer, reject it, or propose a counteroffer. Your real estate agent will draft your offer letter and help you manage negotiations to settle on a final price and set of terms.

6. Conduct Home Inspection

Most home offer letters include home inspection contingencies. If the seller accepts your offer, you will need to schedule the inspection to fulfill the terms of the offer. During a home inspection, a property inspector will walk around the home and document any damage or repair needs they notice in the home. These are important considerations for you as the buyer, as you will take on these needs as the new owner.

Note that the home inspection is not the same thing as the appraisal required by your mortgage lender. An appraisal provides you with a rough idea of what your new home is worth and is required because lenders will not offer more money than a home is worth for its purchase. Unless you're buying a new property that's never been lived in, it's a good idea to schedule an inspection and an appraisal before moving toward closing.

7. Close the Deal and Become a Homeowner

The last step in the buying process is closing on your home. If you have any last-minute questions about your loan, now is the time to ask your lender before officially signing the loan paperwork. At the end of the meeting, you will receive ownership of the property; from here, your only responsibility is managing your new home and covering your payments.

5 Traditional First-Time Homebuyer Programs in Pennsylvania

Before moving forward and applying for loan preapproval, it's important to understand all of your home loan options. The following are five traditional first-time buyer programs in Pennsylvania, as well as who they might be right for.

Conventional Mortgage

Conventional loans are the most common type of loan used by first-time buyers, although they are not designed specifically for those who have never owned a home before. Conventional mortgage loans tend to have lower interest rates but have higher overall credit and income requirements compared to the government-backed loans listed below. The minimum down payment for a Conventional mortgage is 3%, but you will need at least 20% down to avoid the private mortgage requirement.

FHA Loan

FHA loans have backing from the Federal Housing Administration (FHA) and were established to help lower-income people buy a home. FHA loans have lower credit score requirements when compared to Conventional loans; depending on your down payment and lender, you may qualify with a score as low as 500 points. FHA loans also have a minimum down payment of 3.5% for most buyers.

VA Loan

VA loans are specialized types of mortgage loans for members of the armed forces and those who have served in the past. The biggest benefit of a VA loan is the 100% financing option, which may allow you to buy a home with a $0 down payment. To qualify, you will need to receive documented proof of service from your local VA office.

USDA Loan

If you're considering buying a country home, a USDA loan could allow you to qualify with a $0 down payment as well. USDA loans are region-specific, meaning that you can only buy one in a rural or suburban area as defined by the USDA. You will also need to meet income requirements, earning less than 115% of the local median income in your area.

Closing Assistance Programs

In addition to financial assistance issued through the Pennsylvania Housing Finance Agency, you may also qualify for additional help through the local government. For example, the City of Philadelphia's Division of Housing and Community Development offers the Philly First Home program, which may help you access a grant of up to $10,000 to put towards closing costs or your down payment. Explore your local government online to learn about current and active programs you may qualify for.

What are the Mortgage Rates in Pennsylvania?

Every mortgage loan includes an interest rate, which is the percentage of the loan's value you will pay to your mortgage lender annually in exchange for providing loan financing. Monitoring how mortgage interest rates are changing over time could put you in the best position to save money throughout your loan.

Buying Your First Home in the Keystone State

When compared to other states, Pennsylvania residents have particularly great access to down payment assistance, which may help some buyers overcome the largest hurdle in the buying process. If you're thinking about buying a home and think that now could be a good time to enter the market, the first step is to get pre-approved with a reputable lender like New American Funding. With your preapproval letter in hand, you will have a solid budget to use as you compare housing options.

Pennsylvania First-Time Homebuyer Guide FAQs

Is There an Income Limit for First-Time Homebuyers in Pennsylvania?

No, there is no income cap on first-time homebuyers in the Keystone State. However, if you want to qualify for a first-time homebuyer program, you may need to meet income limitations specific to the program or your specific area in the case of the USDA loan.

Can a Person With Low Income Buy a House in Pennsylvania?

Yes, there are multiple first-time homebuyer programs that a buyer with low income may be able to take advantage of to purchase their first home. PA offers the Keystone Advantage Assistance Loan Program and the K-FIT down payment assistance program, which are specifically designed for those with lower income and less liquid assets. Government-backed loan options like FHA loans and USDA loans can also make it easier to qualify for a loan with more debt or a lower credit score.

How Much Does a First-Time Buyer Have to put Down in Pennsylvania?

The amount of money that you'll need to put down in PA will vary depending on your loan program. Most buyers will need a down payment of at least 3% or 3.5%, as these are the minimums for Conventional and FHA loans respectively. If you qualify for a VA or USDA loan, you might be able to buy a home with no money down.

Does Pennsylvania Have First-Time Buyers Programs?

Yes, Pennsylvania offers a series of first-time buyers programs, including those offered through the Pennsylvania Housing Finance Agency and local governments. PA banks also participate in government-sponsored loan programs, which offer more lenient qualification criteria when compared to Conventional loans.

Do you Have to pay Back Down Payment Assistance in Pennsylvania?

Depending on the program, you might not need to pay back down payment assistance. For example, the K-FIT down payment assistance loan may be forgivable if you live in the home that you purchased for at least 10 years. Review the specifics of your down payment assistance program to learn more about repayment requirements.

 

^{* NAF Homes, Inc. is an affiliate of New American Funding and does not originate mortgage loans or issue loan commitments. NAF Homes, Inc. is an MI Real Estate Broker #6505431109, Tel. 844-626-1300.}

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