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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.

  1. Fannie Mae loans
  2. Freddie Mac loans
  3. FHA loans
  4. FHA 203(k) loans
  5. VA loans
  6. USDA loans
  7. Good Neighbor Next Door
  8. HUD’s Dollar Homes
  9. HomePath Ready Buyer
  10. Native American DirectBuyer
  11. 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.

Who’s eligible: Fannie Mae’s first-time homebuyer loan requirements include:

  • At least a 3% down payment (private mortgage insurance will be required until the loan balance hits at least 80% of home value)
  • A credit score of at least 620
  • A debt-to-income ratio (DTI) of no more than 36% (can go higher in some circumstances)
  • Salary of up to 80% of area median income (this can include supplemental income, such as rent from a tenant)

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.

Who’s eligible: Freddie Mac’s first-time homebuyer mortgage requirements include:

  • At least a 3% down payment (PMI required until the loan balance is at least 80% of home value)
  • DTI of no more than 45%
  • Credit score of at least 660 (may be possible to qualify with a lack of credit history by making a 5% down payment)
  • Salary of up to 80% of area median income

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.

Who’s eligible: The FHA loan program requires:

  • DTI of no more than 43% with mortgage payment at 31% or less (some exceptions are possible)
  • A down payment of 3.5% with a credit score of 580, or 10% with a 500-579 score Cash reserves if you’re purchasing a two- to four-unit multifamily property
  • No foreclosure within past three years; no Chapter 7 bankruptcy within last two years

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.

Who’s eligible: The FHA 203(k) loan requires:

  • A down payment of 3.5% with a credit score of 580 or more, or 10% with a score in the 500-579 range
  • FHA mortgage insurance, with an upfront premium of 1.75% of loan amount plus annual premiums of up to 1.05% (possibly throughout the life of the loan)
  • No foreclosures or deed-in-lieu of foreclosures within the previous three years
  • Project cost of at least $5,000
  • Loan amount that’s no higher than the property’s purchase price plus rehab costs or 110% of the home’s value after repair

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.

Who’s eligible: To apply for a VA loan, you must have:

  • A certificate of eligibility from the VA
  • Credit score of at least 620
  • DTI of 41% or less
  • Proof of residual income per VA rules
  • Two-year employment history (possible exception for recently discharged vets)
  • No federal debt defaults

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).

Who’s eligible: To qualify for a USDA loan, you need:

  • Credit score of approximately 640, depending on the lender (exceptions are possible)
  • DTI of 41% or less (exceptions are possible)
  • Household income at or below 115% of the area median income
  • At least one year of employment history

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.

Who’s eligible: To apply for this homebuying program, you must:

  • Live in residence at least three years
  • Use an FHA, VA or conventional mortgage (or pay cash)
  • Sign a “silent second” mortgage and note that covers the discount (no payments are required if you stay for the three years)

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.

Who’s eligible: To participate, you need to:

  • Contact your area housing finance agency to see if any HUD Dollar Homes are available locally
  • Be willing to take on a property that’s remained unsold for at least six months and may even be in “tear-down” condition
  • Be able to pay the costs of getting the home ready for occupancy

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.

Who’s eligible: To participate in HomePath Buyer Ready, you need to:

  • Not have owned a home in the past three years
  • Buy from a list of HomePath properties, which are foreclosed homes owned by Fannie Mae
  • Take a homebuyer education class
  • Move in within 60 days of closing and keep the home as a primary residence

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.

Who’s eligible: To apply, you need:

  • Stable income and satisfactory credit
  • A certificate of eligibility from the VA
  • To keep the home as your primary residence

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.

Who’s eligible: A first-time homebuyer who can meet a given program’s specific requirements.

Ideal for: Any first-time homebuyer who needs help with a down payment, closing costs or other aspects of home purchase.

 

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