Connecticut First-Time Home Buying Assistance Programs & Grants for 2023

Connecticut First-Time Home Buying Guide

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    By Susan Guillory

    (Last Updated – 07/2022)

    Are you a first-time homebuyer in Connecticut? You’re looking at a competitive market in the Constitution State: The number of homes for sale fell 27% from May 2021 to 2022, according to Redfin, a brokerage that tracks housing trends across the nation.

    The median sale price for a home in May 2022 was about $369,000, a 7.5% increase year-over-year. With limited inventory and so much demand, 69% of homes over the past year sold for more than their listing price.

    This home buying guide was crafted to help first-time homebuyers. But hey, that raises a question …

    Who Is Considered a First-Time Homebuyer in Connecticut?

    A first-time homebuyer is someone who has either never owned a home or hasn’t owned one in the past three years.

    At the national level, the U.S. Department of Housing and Urban Development 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

    Veterans and people who buy in targeted areas often qualify for the same state and county perks that first-time buyers do.

    Recommended: First-Time Homebuyer Guide: Process and Resources

    7 Connecticut Programs for First-Time Homebuyers

    The Connecticut Housing Finance Authority leads the way in offering mortgages and down payment assistance to low- and moderate-income buyers.

    Here are the programs.

    1. Homebuyer Mortgage Program

    Mortgages with below-market interest rates can be paired with down payment assistance for those who qualify.

    Borrowers must be first-time homebuyers or purchasing in a targeted area. There are home price and income limits .

    Borrowers must attend a free homebuyer education course, which will explain the home-buying process and mortgage basics.

    2. HFA Advantage and HFA Preferred Loan Programs

    This program for first-time buyers and people purchasing in a targeted area provides mortgage loans with lower monthly mortgage insurance costs. And mortgage insurance premiums end when the borrower reaches 20% equity.

    You must meet sale price and income limits (see the map link above or this chart ).

    3. Military, Teacher, and Police Homeownership Programs

    Connecticut Housing offers benefits to active-duty military members, veterans, and surviving spouses who meet purchase price and income limits. The agency has a similar program for teachers and police officers .

    Another mortgage and down payment program is for applicants who are disabled or who have a disabled member of the household.

    4. Down Payment Assistance Program Loan

    This very low-rate second mortgage provides up to $20,000 to help with a down payment or closing costs.

    Borrowers must apply and qualify for a Connecticut Housing mortgage with a participating lender and demonstrate the ability to repay that mortgage and the second loan to qualify.

    5. Time To Own: Forgivable Down Payment Assistance

    This program provides 0% interest loans with no monthly payment required. Each year, 10% of the balance will be forgiven until the loan is fully forgiven in 10 years. The loan amounts are as follows:

    •  Homes in high- or very high-opportunity areas : up to $50,000

    •  Homes in other areas: up to $25,000

    Borrowers must qualify and receive a Connecticut Housing mortgage, and must have been a resident of Connecticut for at least three years.

    The Time to Own loan may be used with other down payment assistance programs.

    6. Another Down Payment Assistance Program

    Connecticut’s Housing Development Fund offers down payment assistance to qualified first-time homebuyers (the applicant and any non-borrowing spouse must be first-time buyers).

    To be eligible, you must have not had a bankruptcy in the past four years or a foreclosure in the past seven years. You must have funds available to cover at least 1% of the purchase price, pre-closing costs, and emergency reserves, and be able to demonstrate a steady work history and on-time bill payment.

    There are household income limits , which are higher in targeted areas.

    SmartMove CT consists of low-interest down payment assistance of up to 25% of the purchase price.

    Live Where You Work CT offers up to $20,000 in 0% down payment assistance for first-time buyers purchasing homes in the city where they work.

    7. City Programs in Connecticut

    Some cities also offer homeownership help. You might want to look into your city of choice and consult the list compiled by the U.S. Department of Housing and Urban Development (HUD).

    In Washington , Connecticut, the Housing Development Fund offers a 0% interest down payment assistance loan of up to $10,000.

    How to Apply to Connecticut Programs for First-Time Homebuyers

    To apply for a mortgage offered by the Connecticut Housing Finance Authority, contact one or more participating lenders .

    To apply for Housing Development Fund down payment assistance, create an account and upload documents.

    Do you know about how much you can afford to pay for a house? This home affordability calculator could help.

    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 by area.

    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. Most borrowers pay 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. Here’s contact info for the Connecticut HUD office .

    First-Time Homebuyer Stats for 2022

    •  Median home price in Connecticut (May 2022, Redfin): $369,000

    •  3% down payment: $11,070

    •  20% down payment: $73,800

    •  Average credit score of home buyer in Connecticut(vs. U.S. average of 714): 726

    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. Some examples:

    •  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.

    Finally, this home affordability calculator can show you how much you can afford to spend on a home.

    The Takeaway

    First-time homebuyers in Connecticut may be able to take advantage of attractive home loan and down payment assistance options. Those who don’t fit within the parameters can look for mortgage opportunities on their own.

    Make your dream of being a homeowner come true with SoFi’s competitive mortgage rates and down payments as low as 3% for qualifying first-time homebuyers.

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    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 some 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 Connecticut?

    The Connecticut Housing Finance Authority does not offer one.

    Is there a first-time veteran homebuyer assistance program in Connecticut?

    Yes. Connecticut Housing has a veterans program that offers a below-market-rate mortgage that can be paired with down payment assistance for those who qualify.

    What credit score do I need for first-time homebuyer assistance in Connecticut?

    The assistance programs described specify no minimum credit scores. Lenders often determine their own minimum scores.

    What is the average age of first-time homebuyers in Connecticut?

    The U.S. median age of first-time homebuyers is 33.

    Photo credit: iStock/DenisTangneyJr

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