First-time home buyer programs can make homeownership a lot more attainable than traditional mortgage programs. They do this by easing up on approval guidelines, offering lower down payment requirements, and providing additional resources that make becoming a homeowner considerably easier.
That said, first time home buyer programs can come in different forms, with some offering mortgage loans for first-time buyers and others offering down payment assistance or other forms of help. If you're currently searching for your first home and you're wondering which first-time home buyer programs are available to you, read on to learn about available programs, how they work, and who is eligible.
Who is Eligible for First-Time Home Buyer Programs?
Generally speaking, first-time home buyer programs are not available to individuals who own an investment property — even if they have never lived there. From there, eligibility requirements vary and can depend on the program you're applying for.
For example, some homeownership programs are only available to individuals that meet income guidelines, or for those who agree to purchase homes in rural areas or areas chosen for revitalization.
If you apply for a government-backed home loan, the property you purchase also has to meet specific safety standards to qualify for eligibility. This is the case with VA home loans, FHA home loans and USDA loans.
Fannie Mae and Freddie Mac programs
Fannie Mae and Freddie Mac offer a variety of homeownership programs for first-time buyers. While program terms and requirements vary, these loans typically come with lower down payment requirements and more flexibility than traditional home financing options.
Conventional 97 loan
This type of home loan from Fannie Mae lets borrowers purchase their first home with 97% loan-to-value (LTV) financing options. Fixed rate mortgages with a maximum term of 30 years are available, although borrowers may opt for an adjustable-rate mortgage (ARM) and remain eligible for this program. Note that mortgage reserves can be gifted to borrowers, and that this type of loan only works for a one-unit principal residence.
Interestingly, 97% loan-to-value (LTV) financing options don't have any income maximums to be aware of. However, applicants do have to complete a homeowner education session to be eligible.
HomePath is a program from Fannie Mae that makes it easier for first-time buyers to locate homes for sale. Through this online platform, first-time home buyers, real estate professionals, and others can search for and make offers on Fannie Mae-owned homes for sale throughout the country.
Home Possible Mortgage
The Home Possible mortgage from Freddie Mac is geared to low income borrowers who need help getting in their first home. Applicants can get started with a down payment as low as 3%, and co-borrowers who do not live in the home can be included in the loan application.
Qualifying income for this type of mortgage is limited to 80% of the Area Median Income (AMI) where the home is located. Borrowers can also use a Home Possible mortgage to purchase homes with one to four units, condos, and manufactured homes if certain guidelines are met.
The Freddie Mac HomeOne mortgage is a low down payment mortgage that helps individuals get in their first home with a down payment as low as 3%. These loans do not have any geographic restrictions or income limits, and they work for new home purchases as well as cash-out refinancing.
While various types of homes can qualify, the HomeOne mortgage only offers fixed rate financing on one-unit properties.
There are several government-backed mortgage programs that tend to work well for first-time home buyers. Loan terms and qualification requirements can vary, and the details of each program are highlighted below.
FHA Home Loans
FHA loans have been helping first-time home buyers afford their first properties since 1934. These home loans come with minimum down payment requirements as low as 3.5%, low closing costs, and easy credit qualifications. Specifically, borrowers who can come up with a 10% down payment can qualify with a credit score as low as 500, whereas those with credit scores of 580 or higher can put as little as 3.5% down.
FHA home loans are also available for properties with one to four units.
VA Home Loans
VA home loans are available for active duty military, military veterans and eligible family members. According to the U.S. Department of Veterans Affairs, eligibility requirements have also been updated to include National Guard members "with at least 90 days of active service including at least 30 consecutive days under Title 32, Sections 316, 502, 503, 504 or 505."
VA home loans do not require a down payment, and they come with competitive interest rates, limited closing costs and no need for mortgage insurance. VA home loans can be used to purchase a property or to refinance a home loan you already have. Also note that VA home loans are a lifetime benefit, so eligible veterans can qualify on multiple properties over time.
USDA Home Loans
USDA home loans help low and moderate income households move into modest, decent, and safe housing in specific rural areas. Eligible buyers can purchase, build, rehabilitate, improve, or even relocate a dwelling with 100% financing.
Applicants can use the USDA's home eligibility site to search for properties in eligible rural areas. Also note that a buyer's household income cannot exceed 115% of the median household income in the home’s vicinity. USDA home loans are also available for primary residences only.
Native American Direct Loan (NADL)
The U.S. Department of Veterans Affairs also oversees the Native American Direct Loan program. This program is for veterans who are Native American as well as veterans who have a spouse that is a Native American.
Eligible applicants can use a Native American Direct Loan to purchase, build, or improve a home that is located on federal trust land. These loans offer benefits such as no down payment, limited closing costs and no need for private mortgage insurance (PMI). Native American Direct Loans are offered in the form of a low-interest, 30-year fixed mortgage with rates as low as 3.25%.
Good Neighbor Next Door
Good Neighbor Next Door is a U.S. Department of Housing and Urban Development (HUD) program for law enforcement officers, pre-Kindergarten through 12th grade teachers, firefighters and emergency medical technicians. This program offers discounts off the list price of eligible homes, although loan participants have to agree to live in the property as a sole residence for a minimum of 36 months.
Eligible homes are located in specific revitalization areas and are only listed through the Good Neighbor Next Door Sales program. Also note that, while a major discount is offered on the price of eligible homes, HUD requires that you sign a second mortgage and note for the discounted amount. That said, the second mortgage does not accrue interest and no payments are required when you meet the three-year occupancy requirement.
State and Local First-Time Homebuyer Programs
In addition to federally-backed mortgage programs for first-time buyers, many states and regions have their own programs that can help.
As an example, the state of California offers several programs for first-time home buyers, from the CalHFA FHA Loan Program to the CalPLUS Conventional Loan Program. In the state of Connecticut, on the other hand, buyers can turn to options like the HFA Advantage® and HFA Preferred™ Loan Programs for help.
Other states and regions have their own programs to assist first-time buyers, so check with your state or county to see which options are available. You can also look at the HUD website for a list of local homebuying programs that can suit your needs.
Down Payment Assistance Programs
Many states also offer their own down payment assistance programs, which can help first-time home buyers move toward homeownership on a much faster timeline. In the state of Florida, for example, first-time buyers can look into the Florida Assist program (FL Assist) or the Florida Homeownership Loan Program (FL HLP) Second Mortgage. Both of these programs offer help with down payment assistance for applicants who meet eligibility requirements.
In Indiana, a program called First Place (FP) offers down payment assistance of up to 6% of the home's purchase price. The HUD website is an excellent resource when it comes to finding down payment assistance programs based on where you live. Just click on your state and you can see a selection of resources including down payment assistance programs, homeownership grants, and more.
In some cases, employers offer their own programs to help workers afford the upfront costs involved in homeownership. This type of assistance can come in several different forms, including down payment assistance, grants, and loans that can be forgiven over time based on eligible employment.
To find out if your employer offers any homeownership programs for first-time buyers, you should inquire with your workplace Human Resources department.
Nonprofit First-Time Home Buyer Programs
Finally, you can look for homeownership programs offered by nonprofit organizations. A good example is Habitat for Humanity, which is a nonprofit organization that builds homes for low income individuals around the world.
The Neighborhood Assistance Corporation Of America (NACA) is another program offering assistance in this area. This organization offers both comprehensive housing counseling and access to an affordable mortgage with no down payment, no closing costs, and no fees. Interest rates are also extremely competitive, although applicants with higher incomes won't get access to the best rates.
The examples we included are two of the most popular nonprofits that offer help with housing for first-time buyers, but there are others out there. Make sure to consider all your home loan options, as well as government-backed mortgages, to get in your first home sooner rather than later.