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A little help can go a long way when it comes to buying your first home. Applying for a mortgage and saving up for a down payment can feel intimidating at best, impossible at worst. Fortunately, there are first-time home buyer programs designed to make the process a little less stressful — you just need to know what they are and where to look.
With the help of Joseph Baylis, a top New Jersey agent with 40 years of experience assisting first-time buyers, we’re giving you a rundown of the best first-time home buyer programs that are available.
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First, a brief introduction
First-time homebuyer programs are just that: programs designed to help people purchase their first home.
Many programs are government-backed, while others are funded through housing authorities or financial institutions. Some programs are offered on a national level, others are statewide, and some are hyper-local to a particular area.
Each program will have its own set of qualifications, which will involve factors like your credit score, income, down payment amount, the price of your desired home, and more. Some require eventual repayment, and some are as good as gifts.
Bottom line: First-time homebuyer programs are all different, and they’re all subject to change with regularity. While finding an experienced real estate agent is key to your purchase process, your best bet for gathering the most accurate, up-to-date information on homebuyer programs is always to start by talking to a mortgage professional.
“When it comes to mortgages, the programs change [frequently] and I don’t want to misinform anyone,” says Baylis, who advises his clients that programs may be available that are a good fit for their needs — but that, as a Realtor®, he’s not necessarily the best resource for lending-related questions.
“As a first step, I always put new buyers in touch with my mortgage professional, who can provide those answers.”
Now that we’ve covered the basics and disclaimers, let’s take a closer look at actual first-time homebuyer programs.
FHA loans
FHA stands for the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD). The FHA backs mortgages to allow lenders to offer a favorable deal to homebuyers.
FHA loan advantages include:
* Low down payments (as low as 3.5%)
* Less-restrictive credit qualifications
Because these loans are so accommodating, they’re a good fit for many first-time buyers. Saving for a down payment is often the biggest challenge for prospective buyers, so being able to get into a home for potentially less than 4% down can offer the ability to buy a house much sooner rather than later.
“We probably would have had to wait longer to purchase our first home if we didn’t use the FHA program,” says Imani Francies, an Atlanta-area homebuyer. “With the high cost of renting and keeping up with bills, saving for a higher down payment would’ve probably taken us a couple of years.”
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Of course, qualifications do apply. To be considered for an FHA loan, you must:
* Have a credit score of at least 580 to be eligible for a 3.5% down payment (scores between 500 and 579 will typically require a 10% down payment)
* Have a debt-to-income ratio of less than 43% (though it can be higher in some cases)
* Have proof of employment and reliable income
* Understand that mortgage insurance — to protect the lender in the event of loan default — will be required
* Be purchasing a home as your primary residence (in other words, you can’t buy the house and then use it as a rental property)
Your mortgage professional can give you more details — and offer advice to set you on a path to qualification if you’re not ready for an FHA loan just yet.
As a heads up, in an active market or on a coveted property where competition is high and multiple offers are on the table, your real estate agent may encourage a little extra legwork to appeal to the human side of the seller when it comes to submitting an offer on your hopeful home.
“Many first-time buyers I work with are FHA,” says Baylis. “They’re getting starter homes and going against buyers who may be moving up and have 20% [as a down payment]. It’s hard to compete. We ask buyers to write a letter when they put an offer in.”
Do keep in mind that while writing a letter can be an effective tactic, compliance with the Fair Housing Act is essential.
USDA rural housing loans
Yes, we mean that USDA: the U.S. Department of Agriculture.
If you’re hoping (or willing) to buy in a rural area, a USDA home loan may be helpful for you as a first-time homebuyer. And you might be surprised by how flexible the definition of “rural” is!
USDA loan qualification requires that:
* The property is in a qualified rural area
* The home will be used as your primary residence
* You have a reliable source of income
* Your credit history is stable — a score of 640 or higher is preferred, with no late or missed payments over the last 12 months
* Your adjusted household income does not exceed 115% of the area’s median income
Because the USDA home loan program is designed to help lower- and middle-income families purchase homes, there are income limitations. For a household of between one and- four people, $103,500 is the limit. For between five and eight in a household, the limit is $136,600.
Remember, limitations and guidelines are subject to change. Talk with your mortgage lender if you think a USDA loan might be right for you.
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VA loans
The Veterans Benefits Administration offers a home loan guaranty benefit to current and veteran service members, and there are several advantages to this program:
* No down payment is required (it’s possible that your lender may require one depending on the structure of your final loan, but the VA does not)
* No mortgage insurance is required
* Low interest rates are available
* Closing costs are limited
* VA home loans are a lifetime benefit — they’re not just for first-time buyers
Eligibility is determined by duty status and length of service, income, and credit history. Those who qualify will receive a Certificate of Eligibility (COE) from the VA to present to their lender of choice.
Speak with your mortgage advisor for more information, or contact VA home loans service.
HUD homes
Remember the earlier mention of HUD along with FHA loans? HUD homes are properties that are being sold by federal agencies — not private individuals.
Typically, these are foreclosure homes that came into HUD’s possession following default on an FHA-backed mortgage.
HUD homes can be a good opportunity for first-time buyers, but there are a few significant purchase restrictions:
* HUD homebuyers must live in the home for a minimum of 12 months after purchase. Failure to do so can result in steep penalties.
* The house is only eligible for a new FHA loan if it requires less than $5,000 in repairs, thus qualifying as an FHA-insured HUD home. For repairs exceeding $5,000, you can use FHA’s 203(k) rehab loan program or you’ll need to find a different type of mortgage to make your purchase.
* HUD homes are sold as-is. There will be no opportunity to negotiate for repairs or repair allowances.
As you’ll expect by now, HUD home requirements and restrictions can and do change regularly. Visit HUD’s guide to buying a home to learn more.
Good Neighbor Next Door
The HUD Good Neighbor Next Door program helps eligible public servants, first responders and K-12 teachers purchase certain HUD homes with a 50% discount.
The “discount” isn’t in the form of a slashed sales price, however — it’s handled through a silent second mortgage. While you will have to sign your name to this note, no interest or payments are due as long as you fulfill the minimum occupancy requirement of three years.
Buyers must agree to live in the home following purchase, and the property must be located in a qualifying revitalization area. The idea behind this program is that individuals who already serve the community on a professional level can also help enhance a neighborhood by caring for a home in an area that can benefit from stability and development. In return, these homebuyers enjoy a significantly reduced cost of living.
Requirements are strict, and home availability changes weekly, so start with the FHA FAQ if the Good Neighbor Next Door program sounds like a fit.
Section 184 Indian Home Loan Guarantee
Also a HUD program, the Indian Home Loan Guarantee assists Native American communities with home purchase opportunities. HUD’s office of Native American Programs guarantees these mortgage loans, and it works directly with the Bureau of Indian Affairs if tribal land is involved.
Eligible borrowers are American Indians or Alaska Natives who are members of a federally recognized tribe and who apply to purchase a home in an eligible area.
Applicants must work with a HUD-approved Section 184 lender, and mortgages are limited to fixed-rate loans of 30 years or less. Loan limits are determined by county.
VA Native American Direct Loan
Open to eligible veterans, the Native American Direct Loan (NADL) assists homebuyers with the purchase or construction of a home on Federal Trust land.
As this is a VA program, requirements for eligibility are strict, and all conditions must be met, including:
* Eligibility as a veteran
* Eligibility as a member of a tribal organization participating in the VA direct loan program
* Obtaining a VA Certificate of Eligibility
* Purchasing or constructing a home on Native American trust land
* Occupying the property as a primary residence
* Having a satisfactory credit history
For more information, contact your regional loan center with questions.
FHA Section 203(k)
This program, 203(k) Rehab Mortgage, should be on your radar if you’re interested in purchasing a home that needs extensive repair or renovation.
The benefit of Section 203(k) is that homebuyers — first-time or otherwise — can roll both the purchase of the property and the cost of home rehabilitation into one mortgage.
The home in question must be at least one year old, and the minimum cost of necessary repairs is $5,000. In addition, total property value must meet the parameters of local FHA mortgage limits.
Fortunately, the list of eligible rehabilitation activities is quite generous, which makes Section 203(k) one of the more flexible programs. You will need to work with an FHA-approved lender, but once approved, you’ll be able to:
* Perform structural alterations
* Modernize or otherwise improve the home
* Eliminate any health or safety risks
* Improve property appearance
* Replace plumbing, roofing, and flooring
* Improve landscaping
* Enhance home accessibility
* Make improvements to energy efficiency
The FHA resource center — or your lender — is a good place to start to learn more.
Fannie Mae HomePath and HomeReady
Similar to HUD homes, Fannie Mae HomePath homes are foreclosures owned by Fannie Mae.
The HomePath program aims to restabilize neighborhoods and help homebuyers from all backgrounds. Though HomePath homes are available to anyone who is interested in and qualified for purchase, the HomePath Ready Buyer Program — in combination with a HomeReady mortgage — is especially valuable for first-time homebuyers.
Features of a HomeReady mortgage on a HomePath home include:
* A 3% down payment option
* Co-borrower flexibility (in other words, you can have a mortgage cosigner who won’t live in the home with you)
* Ability to include additional income sources in the qualification process (if you’ve been renting out a spare room to a friend, you can count their payment as valid income)
To help create more stable homeowners, an education requirement is involved with a HomeReady mortgage. With few exceptions, first-time buyers must complete an online course through Framework that takes between four and six hours to finish.
Your lender can provide you with more information on Fannie Mae HomePath homes and a HomeReady mortgage.
Freddie Mac HomeOne
Freddie Mac HomeOne is a low down payment mortgage option for first-time homebuyers. Qualified buyers are not subject to income limits or geographic restrictions and can put down as little as 3% on their home purchase.
Similar to the Fannie Mae HomeReady program, first-time buyers through HomeOne will need to complete a homeownership education course (this free program through CreditSmart is acceptable).
Check out the Freddie Mac HomeOne FAQ to learn more about this versatile program, or talk to your mortgage professional.
Freddie Mac Home Possible
For low-income buyers, the Freddie Mac Home Possible program provides an opportunity to become a homeowner.
As with the HomeOne program, buyers can put down as little as 3% — but Home Possible is more flexible with income sources and co-borrowers, which means there’s greater opportunity to buy.
There is an income limitation not to exceed 80% of the area median income in order to qualify for Home Possible, but the program is otherwise quite flexible. Check the FAQ for more details.
Down payment assistance grants
These programs will vary by state, but a down payment assistance grant is exactly what it sounds like: money to help you with your down payment that you do not have to repay.
Down payment grants are usually reserved for first-time homebuyers, and, depending on the terms of the specific grant, may include income limitations, a cap on the home purchase price, and the property may have to meet certain criteria — such as being a single-family home or located in a particular area.
Because down payment assistance grants are so regional and change frequently, this is a great conversation to have with your mortgage lender. You can also run a Google search for “down payment assistance grants [state]” to get an idea of what may be currently available in your state.
Down payment assistance loans
These are similar to down payment assistance grants, but with one major difference: you may have to pay back a down payment assistance loan eventually (some are forgivable once you meet certain requirements, and others allow you to defer payment until you sell or refinance). Depending on how much you’ll need (or want) to put down on your home, a down payment loan may or may not be a good idea.
Again, like grants, down payment assistance loans are localized and subject to regular change, so you’ll want to ask your lender about these opportunities — or Google search “down payment assistance loans [state]” as a starting point.
As ever, expect to navigate credit worthiness, limits on income, purchase price, and location of the home.
Homeownership vouchers
Under the HUD umbrella, homeownership vouchers offer individuals assisted by Section 8 public housing an opportunity to use their vouchers toward the purchase of a home.
Homeownership vouchers are not supported by every public housing agency (find the ones that do here), users must be first-time homebuyers, and there are very specific employment and income requirements.
To find out more about HUD homeownership vouchers in your state, check the HUD listing.
State housing agencies
State housing finance agencies are an excellent resource to learn more about first-time homebuyer programs and other affordable housing efforts.
The National Council of State Housing Agencies (NCSHA) provides links to and information on each state’s official housing agency, as well as details on what, exactly, is the function of these agencies.
NCSHA is a great place to start if you’re exploring local opportunities for first-time homebuyer programs and want to have an overview before speaking with a lender.
Local housing authorities
Even closer to home than state housing agencies, local housing authorities operate on a county or even city level. Depending on available funding and homebuyer eligibility, ultra-local first-time buyer assistance programs may be on offer.
Find your local housing authority through the HUD state information listing, or Google search “housing authority [city, state].”
Conventional loans
To wrap up our first-time homebuyer program list, we’ll end with conventional loans.
These are simply private mortgage loans that are not backed by the government. They break down into two major categories:
* Conforming conventional loans, which have loan limitations. Every year, the Federal Housing Finance Agency releases new rules for conforming loan limits based on average property values. For 2023, the baseline limit is $726,200, though adjustments are made for higher-cost areas up to 150%, or $1,089,300.
* Non-conforming conventional loans, which are not bound to loan limits and can vary widely in terms of eligibility, interest rates, loan length, and more.
Conventional loan qualification starts with a credit score of 620 (though 740 or higher will yield a better interest rate), proof of reliable income, and you should plan on putting at least 5% down. Putting down 20% will allow you to skip the mortgage insurance, but as a first-time buyer, that percentage could mean a longer wait until you’re ready to buy.
Your mortgage lender can assess your financial situation and credit history to help you determine if a conventional loan is the best option.
Save thousands when buying a home
HomeLight-recommended real estate agents are top-tier negotiators who understand the market data that helps you save as much as possible when buying your dream home.
Find a top buyer’s agent
Lots of options, lots of opportunity
While the seemingly endless array of first-time homebuyer programs may feel daunting, take heart — the more options that are available, the more opportunities you’ll have to leverage your way into your homeownership.
If we’ve said it once in this article, we’ve said it a dozen times: An experienced mortgage lender is going to be your best ally through this process. If you don’t yet have a trusted lender, talk to your real estate agent, or simply ask around.
A friend or colleague who recently purchased a home may be able to refer you to someone great, and your current bank or credit union can do the same. Most financial institutions will have an in-house lending advisor or a list of reputable referrals.
Good luck on your homebuying journey!
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