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Financing

What to know about buying a house in New York

From credit scores to loan options, everything you need to know about buying a home in New York.

Welcome Homes
/ Jul 14, 2022 / 10 min read

Purchasing a property is one of life’s biggest investments, and when you're a first-time homebuyer, it’s natural to be a bit overwhelmed by the process. Moving into that perfect home that has every feature you need and the extras you’ve dreamed about, along with enough space for your life, is possible — and it’s easier to get there with programs designed for first-time homeowners. In New York, federal- and state-level funding is designed to help make your dream home more affordable. 

By qualifying for first-time homebuyer programs you could lower your home purchase price, receive mortgage assistance, and even get general cost assistance. If you are looking for a homebuyer dream program, a start with this guide will help you move into your first home. 


Home Buying Basics

Before you get too deep into research, a basic understanding of what’s involved in the home buying process and what you’ll need to secure a mortgage can help take away some of the confusion and worry while buying your first home or a parcel of land to build a home on. The U.S. Department of Housing and Urban Development’s extensive toolkit offers information to get started: 


  1. Determining your budget and the ideal timeline for moving into your dream home.
  2. Creating a home wishlist, such as a specific number of bedrooms and bathrooms, a chef-ready kitchen, a yard, and a neighborhood with highly-ranked schools.
  3. Understanding different types of homes, including manufactured, fixer-uppers, and new construction, and seeing which might be the best for your budget and needs.
  4. Getting an overview of the home buying process, such as inspections, appraisals, making an offer, closing, and getting approved for a mortgage.
  5. Researching first-time home buying resources in New York State and in your county and city.
  6. Gathering documents and information for applications to apply for first-time homebuyer funding.


Credit scores and finances

Getting your financial health in order is a must on the first time homebuyer’s journey, and it’s the greatest hurdle for most people to overcome. It’s never too early to prepare to get a loan, and cover the down payment and monthly mortgage on your first home, by making choices that will set you up for success. 


To see what to aim for, the requirements you’ll need for New York State’s Homeownership Assistance Fund is one place to begin: 


  • Reliable and verifiable income for the last two years.
  • Substantial credit history and a score that indicates you’ll pay bills on time.
  • Ample financial resources to cover initial costs and closing fees.
  • Sufficient income to cover homeownership expenses. 


What credit score is needed to buy a house in New York State?

There’s no hard and fast rule about the credit score that you need to secure a loan and land your first dream home. Of course, the higher your credit score the better, but there is a general baseline to reach to ensure that you meet eligibility requirements to secure a mortgage as a first time homebuyer.


While you can find mortgages to buy a home with a lower score, the magic number to aim for is 620 to submit a competitive application for a mortgage through any lender. If your credit score or income does hinder you from obtaining a mortgage through conventional means, Federal Housing Administration (FHA) loans can be a solution. For example, you can typically acquire an FHA loan with a FICO credit score of 500, while a score of 580 can usually earn you the best rate. 


How much is a downpayment on a house in New York City?

Your credit score and mortgage are only one part of the picture and you’ll also need the cash for a down payment on that dream home. Aside from leniency with credit score requirements, state- and government-supported home buying funding can also significantly reduce your upfront costs. 


FHA loans will require a down payment of 3.5%, as compared to the average down payment in New York City of  20% of your purchase price, as of April 16, 2021. FHA loans are known for their flexibility and how they can pave the way for homeownership for people who might otherwise not have the savings to do so — an FHA loan is even accessible after bankruptcy.


Joining First-time Homebuyer Programs in New York

With a basic understanding of how a federal loan may help you pay for a mortgage and down payment, let’s take a closer look at the different pathways in the State of New York, and what they offer. 


First-time homebuyer loan programs in New York

Because one of the most significant barriers for people to purchase their first home is down payment and closing costs, the State of New York Mortgage Agency’s Down Payment Assistance Loan (DPAL Plus), helps New York residents with loan assistance. With DPAL Plus, your down payment will be reduced, and your mortgage interest rate will be fixed and lower than with standard loans. 

More specific benefits of the DPAL Plus down payment assistance loan for first-time homebuyers are zero percent interest rates, no monthly fees, and a maximum loan amount of three percent of the purchase price, or $3,000, whichever is higher. You will want to check in advance to see if your preferred lender offers a State of New York mortgage

In addition to DPAL Plus, the State of New York Mortgage Agency has other mortgage assistance for homebuyers in New York with optional ad-on features. There are paths for down payment assistance and reduced purchase prices based on veteran status or other classifications. 

For example, the Homes for Veterans Program offers fixed-rate mortgages with interest rates that are 0.375% below typical FHA loan payment assistance rates for first homes. The Native American Direct Loan is for veterans with Native American heritage or veterans married to those with Native American heritage who meet specific first homebuyer requirements


New York first-time homebuyer down payment assistance 

Along with special mortgage interest rates and loans to cover down payments, grants are also available. Often these grants are in the form of forgivable loans, with a portion of the loan forgiven each year that the buyer lives in the home, with timeline requirements such as occupancy for 10 consecutive years — that means the loan will never need to be repaid.

The Homebuyer Dream Program®, part of the Federal Housing Finance Agency (an independent US Federal Agency), provides grants for down payments and closing costs, with grants up to $10,000. Other grants are found across New York State counties and cities, and generally require you to:

  • Be a first-time homebuyer
  • Take a home buying course
  • Meet income and purchase price requirements
  • Buy in an approved location

National First-Time Homebuyer Programs

Those FHA loans that are available with a FICO credit score as low as 500, are part of a nationwide program to help people buy their first home. Not only Federal Housing Administration (FHA) mortgage lenders but also United States Department of Agriculture (USDA) loans are one way to secure lower mortgage rates. The program you apply for will depend on your homeownership goals and finances.

Federal Housing Administration (FHA)

In 1934, The National Housing Act created the Federal Housing Administration (FHA) to increase home construction and provide loan insurance. When you are buying your first home, the FHA doesn’t provide the loan for your mortgage, but insures your loan so that your lender can give you a better rate. First time homebuyers across the United States can work with an FHA mortgage lender to benefit from low down payments, closing cost assistance, and lower credit qualifications needed to secure a loan. State and city programs may work with FHA lenders.


Important FHA terms

Partnering with a government agency means getting familiar with processes and terminology, like these:

U.S. Department of Housing and Urban Development (HUD)A department of the U.S. government, which administers federal housing and urban development laws. 

Federal Housing Administration (FHA)A mortgage insurer that HUD oversees; the administration provides mortgage insurance on loans made by HUD-approved lenders. 

FHA mortgage insurance: Protects lenders against losses. If a property owner defaults on their mortgage, the FHA will pay a claim to the lender for the unpaid principal balance. This allows lenders to take on less risk and offer mortgages at better rates for first-time homebuyers.

FHA mortgage limitsFHA's nationwide mortgage limits; the "floor" and "ceiling" for a one-unit property in Calendar Year 2022 are $420,680 and $970,800, respectively. However, these limits vary and you can look up the limit based on where you are planning to buy your first home. 

FHA, or Title II Loan: A loan issued by a private lender which is approved by HUD and insured by FHA as part of FHA’s mortgages. From Title II of the National Housing Act of 1934 for single-family homes.

Basic Home Mortgage Loan 203(B): The most common first time homebuyer FHA Loan. It is covered by a lending institution, such as a mortgage company, bank, or savings and loan association, and insured by HUD.  

Housing counseling and education courses: HUD partners with housing counseling agencies across the country to help first-time homebuyers walk through the homebuying process. Participating in counseling is a requirement to qualify for national and state homebuyer funding.

USDA loans

The United States Department of Agriculture provides loans for first-time homebuyers. To be eligible for many USDA loans, your income must be at a certain level and the home (or land) that you’d like to purchase must be in a USDA-defined rural area; you can search online to see which areas are covered.

The USDA’s Single Family Housing Guaranteed (Section 502) loan allows applicants to purchase, build, rehabilitate, improve, or relocate a dwelling in a rural area with 100% financing. New residential properties are also included and site preparation costs like grading, foundation plantings, and seeding or sod insulation may also be paid for with these loans. 

Buying a Home in New York’s Major Cities and Counties

For first time homebuyers in New York’s major cities and counties there are local resources to make homeownership possible, through grants, loans, and educational programs.

Albany 

If you are planning to purchase your first home in the City of Albany, the Home Acquisition Program (HAP), can be one pathway. HAP is supported by the U.S. Department of Housing and Urban Development and also follows HUD’s eligibility requirements. The money may be used to cover some closing costs, credit reports, lender title insurance, or recording fees and transfer tax.


Albany County Rural Housing Alliance (ACRHA) is a HUD-approved counseling agency, which also provides grants and loans. Its counseling services and online Homebuyer Education Course are available to all homebuyers, with no fees. Completing an approved homebuyer education course is one of the requirements for mortgage financing through the alliance.

Westchester County

To buy your first home in Westchester County, Westchester Residential Opportunities – a HUD-certified housing counseling agency, licensed real estate broker, and United Way Agency has programs to assist you. The First Home Club, offers a three-to-one match to help home buyers build up the savings needed for a down payment and closing costs. Participants who save consistently can qualify for matching funds of up to $5,000. Individual Development Accounts are another program through the agency for matching funds and its one-to-one homebuyer counseling can help you get started.   

New York City 

For New York City homebuyers, there are numerous ways to get assistance for that first home. The HomeFirst Down Payment Assistance Program provides qualified first time homebuyers with up to $100,000 in down payment or closing costs on a one- to four-bedroom family home, condominium, or cooperative in the five New York City boroughs. In addition to meeting income requirements and being a first-time homebuyer, to qualify you will need to:

  • Complete a homebuyer education course taught by a HUD-approved counseling agency.
  • Make a minimum down payment of 3% of the purchase price towards the home, with 1% of the contract deposit self-funded.
  • Complete a Housing Quality Standards (HQS) inspection on the home before purchase.
  • Live in the home for at least:
    • 10 years if the loan is less than or equal to $40,000
    • 15 years if the loan is greater than $40,000


Putnam County

Putnam County Housing Corporation offers online home buyer education courses and loans through the Federal Home Loan Bank of New York Homebuyer Dream Program. There are several financial institutions to work with through the program for up to $9,500 towards down payment or closing costs including Tompkins Mahopac National Bank, M&T Bank, PCSB Bank, and Hudson Valley Federal Credit Union.


Rochester and Monroe County

Monroe County's First-time homebuyer Program administered by The Housing Council provides one-time grants for down payment and closing cost assistance to first-time homebuyers in the suburban towns and villages of Monroe County. The council also offers credit repair, budgeting, mortgage products, savings advice, pre-purchase counseling, and post-closing assistance. The City of Rochester’s Home Purchase Assistance Program provides grants of up to $3,000 for closing costs.


Yonkers

With Yonkers’ American Dream Downpayment Initiative, the Bureau of Community Development offers low-interest loans to qualified first-time homebuyers for down payment and closing cost assistance up to $10,000.00 at 3.00% interest for 30 years.



It’s Never Too Early to Start Planning

With 30-year mortgages the norm, and many grant programs requiring you to live in your home for 10 years or more, purchasing a home is a long-term commitment, which takes planning. It’s never too early to get started, and the more you look ahead, the greater likelihood you can move into that house according to your preferred timeline. 


Wherever you want to settle for your first home, loans and grants across the state can help you get there. Even before you delve into researching your dream home, you can familiarize yourself with the best resources in your targeted city. Keep in mind that buying a home doesn’t happen overnight, but there are ways to make the journey easier.

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