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11 First-Time Homebuyer Programs and Loans
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A first-time buyer isn’t just someone who’s never owned a home. “First-time” can also apply to other situations, such as not having owned a home for three years or being a single parent or displaced homemaker who once owned a home with a spouse.
Many types of home loans for first-time buyers exist. Depending on your income, creditworthiness and how much you can save for a down payment, you may qualify for one or more of the following first-time homebuyer programs. Doing so can make it easier to go from renter to homeowner.
- Fannie Mae loans
- Freddie Mac loans
- FHA loans
- FHA 203(k) loans
- VA loans
- USDA loans
- Good Neighbor Next Door
- HUD’s Dollar Homes
- HomePath Ready Buyer
- Native American DirectBuyer
- Local first-time homebuyer programs
1. Fannie Mae loans
Fannie Mae has a first-time homebuyer loan that stipulates just a 3% down payment: the HomeReady® mortgage. To take part, applicants must complete Fannie Mae’s “Framework” homeownership education program.
Note: Those buying single-family homes need not chip in a certain percentage of their own funds. Instead, they can use a “Community Seconds” loan (a form of down payment assistance), money gifts or first-time homebuyer grants for the down payment and closing costs.
Ideal for: Low- to moderate-income buyers with credit score of at least 620 who want the benefits of a conventional mortgage (such as cancelable PMI).
2. Freddie Mac loans
Like the Fannie Mae first-time buyer program, Freddie Mac’s Home Possible® loan is designed for low- to moderate-income applicants who can afford at least 3% as a down payment. It has a higher credit score requirement, yet Home Possible is potentially open to people whose lack of credit history means they have no credit score at all.
Applicants must take a homebuyer education course if (a) all applicants are first-time homebuyers or (b) none of the borrowers has a credit score. As with the Fannie Mae first-time homebuyer loan program, you can use gift money, grant funds or a loan from “Affordable Seconds,” a program that helps with first-time homebuyer down payments.
Ideal for: Low- to moderate-income buyers with limited funds for a down payment and a credit score of at least 660, but also those who have no credit score due to lack of credit history.
3. FHA loans
These government home loans are issued by approved lenders and insured by the Federal Housing Administration. They’re a common option for low-income, first-time homebuyers who don’t qualify for conventional financing, due to credit issues and/or inability to make a large down payment.
The home must be your primary residence for at least 12 months. You’ll be required to prove stable income over the past two years. However, you may co-borrow with another person even if they aren’t living in the home with you.
A cash gift or money from a down-payment assistance program can be used with an FHA loan. Note: The FHA appraisal guidelines are stricter than conventional home appraisals, so appraisal reports may cost more.
Ideal for: A low-income first-time homebuyer without much cash for a down payment or who has credit issues that make conventional financing impossible.
4. FHA 203(k) loans
This FHA program helps applicants who want to buy homes that need work, but who don’t have the cash on hand for renovations. An FHA 203(k) loan combines the purchase price and the renovation costs into a single mortgage.
Ideal for: Those with less-than-perfect credit scores who buy fixer-uppers and can’t afford to pay upfront for repairs/renovations.
5. VA loans
The U.S. Department of Veterans Affairs (VA) created this mortgage just for military borrowers. These government home loans help active-duty and veteran service members (as well as eligible surviving spouses) to buy up to a four-unit dwelling to be used as a primary residence.
No down payment or PMI is necessary, although applicants must pay a VA funding fee of 0.5% to 3.6% of the loan. However, this fee can be rolled into the loan or even waived in some cases. In addition, a VA homebuying loan may not include more than 1% of the loan amount for closing costs.
Ideal for: Military borrowers or eligible survivors, especially if they are having trouble saving a down payment.
6. USDA loans
Another type of government home loan, it’s guaranteed by the U.S. Department of Agriculture. As the name might suggest, it’s specifically for homes in rural areas as defined by the USDA.
No down payment is necessary, although you may use gift funds to make a down payment. Private mortgage insurance is not required, but you will need to pay a guarantee fee: 1% of the loan upfront (usually rolled into the loan) and 0.35% per year (added to the monthly payment).
Ideal for: Low- to moderate-income buyers with decent credit scores who want to live in rural areas.
7. Good Neighbor Next Door
This is a unique homebuyer assistance program, aimed at teachers, firefighters/EMTs and law enforcement officers. Good Neighbor Next Door offers 50% off the list price of residences in “revitalization areas,” as defined by the Department of Housing and Urban Development. Buyers can pay as little as $100 for the down payment.
No income or credit limits apply; however, if applying for FHA financing, the buyer must meet FHA requirements. The buyer and/or spouse may not have owned another residence for one year before applying.
Ideal for: Public servants who want a deep discount to live in the communities they serve.
8. HUD’s Dollar Homes
No need to qualify for a first-time homebuyer mortgage with this program. If you’re eligible for this U.S. Department of Housing and Urban Development initiative, all you’ll need is a dollar plus closing costs.
The program is a partnership between HUD and local governments and nonprofits. Buyers must choose from a list of foreclosed homes owned by HUD.
Ideal for: Low- to moderate-income buyers who are prepared to put a lot of work into a property.
9. HomePath Ready Buyer
This first-time homebuyer program isn’t a mortgage. Operated by Fannie Mae, HomePath Ready Buyer™ promotes “smart and sustainable homeownership” by providing homebuyer education and up to 3% in closing costs assistance.
Ideal for: Those who are interested in help with closing costs.
10. Native American DirectBuyer
This VA homebuying program is for Native American veterans and non-Native American veterans who are married to Native Americans. It’s designed to encourage buying, building or improving homes on federal trust land.
No down payment is necessary and closing costs are minimal for these low-interest, fixed-rate, 30-year government home loans. Private mortgage insurance is not required, but you may need to pay the VA funding fee.
Ideal for: Eligible veterans seeking a low-cost, government-backed mortgage with low closing costs and no need to pay PMI.
11. Local first-time homebuyer programs
Local and state governments may provide great financial help through proprietary new homeowner programs. This could mean first-time buyer down payment assistance, money toward closing costs, grants to improve energy efficiency or other benefits that vary depending on the program.
HUD maintains a state-by-state list of new homebuyer programs. Real estate agents may know of local homebuying programs as well.
Ideal for: Any first-time homebuyer who needs help with a down payment, closing costs or other aspects of home purchase.