First-Time Homebuyer Guide Index
- FHA Loans
- FHA 203(k)
- Conventional 97
- HomePath Ready Buyer Program
- Good Neighbor Next Door
- Dollar Homes
- USDA Loans
- VA Loans
- Native American Direct Loan
- First-Time Homebuyer Programs by State
- First-Time Homebuyer Program State Directory
Gone are the days when you needed perfect credit and 20% down to buy a home. In the last several decades, we’ve seen the development of home-buying programs geared toward reducing barriers to homeownership.
These programs help first-time homebuyers by reducing down payment and qualifying credit requirements. Some of the best first-time homebuyer programs even offer subsidies for closing costs, tax incentives, or extra financing for rehab projects.
The bottom line is that many first time homebuyer loans offer unique features and perks.
The Federal Housing Authority (FHA) 203(b) loan is a low-down-payment product geared toward making homeownership more accessible to middle and low-income homebuyers. It features competitive interest rates and less-stringent credit score requirements than conventional mortgages. Borrowers with scores as low as 580 may qualify for an FHA loan.
FHA loans are a great option for first-time homebuyers who don’t have a long credit history to bolster their scores. With down payment requirements between 3.5-10% of the purchase price, you don’t need huge cash reserves either.
The FHA allows homebuyers to use its loans for a variety of property types, including:
- Eligible manufactured homes
- Eligible mobile homes
- Approved townhomes and condos
- Multi-unit properties (up to 4 units)
- Single-family homes
Anyone can use an FHA loan to purchase a home—the program is not limited to first-timers. That being said, FHA loans aren’t meant for investors, so you generally can’t have more than one outstanding FHA mortgage at a time.
Despite its many benefits, some homeowners find the private mortgage insurance (PMI) on a FHA loan limiting. When your FHA down payment is less than 10%, PMI payments don’t end as you build equity in your home, meaning slightly higher monthly payments over the life of your loan.
The FHA 203(k) mortgage is a product that allows a homebuyer to finance certain rehabilitation projects as a part of their home loan. The estimated cost of repairs is rolled into the total loan amount, which can’t exceed 110% of the anticipated home value after renovations.
Let’s say you want to buy a home listed at $125,000. Your appraiser tells you that if you add a bathroom, it would be worth $150,000. Your standard 203(k) loan would allow you to borrow a maximum of $165,000 (110% x $150,000). After purchasing the home for $125,000, you’d have $40,000 to pay for upgrades.
In addition to the standard 203(k) loan, FHA offers a limited 203(k) meant for non-structural repairs and upgrades. Limited 203(k) loans cap out at a $35,000 add-on, but require less due diligence ahead of closing.
The FHA 203(k) program includes stipulations about the kinds of repairs it will allow. Possible rehab projects include:
- Energy efficiency upgrades
- HVAC, plumbing, and electrical
- Kitchen and bathroom remodels
- Expansions or additions
- Replacing, siding, roof, and flooring
203(k) loans do not approve financing for:
- Luxury features such as pools or hot tubs
- Additions for non-residential use
To qualify for a 203(k) loan, you’ll need a minimum 620 credit score and a debt-to-income ratio at or below 43% (including your new mortgage payment). Like the traditional FHA program, there’s a minimum 3.5% down payment requirement and monthly PMI.
Conventional 97 is a Fannie Mae program that allows homebuyers to finance up to 97% of a home’s value using a conventional loan originated by a Fannie Mae approved lender. These loans will require monthly PMI at first, but those payments drop off when you reach 80% equity. That’s a big point of difference from the FHA loan.
These 3% down mortgages are available as a standard product, or through the HomeReady program. HomeReady was designed exclusively for first–time homebuyers. You may be eligible for HomeReady if you’re a first-time homebuyer who makes no more than your regional annual median income. The income cap is waived for buyers living in low-income census tracts.
HomeReady is a good option for some first-time homebuyers because of its low down payment requirement, but those with poor to fair credit may want to look elsewhere. Credit and DTI requirements vary by lender, but you’ll likely need at least a 620 credit score to qualify. And only borrowers with credit above 680 will be eligible for competitive interest rate pricing.
In addition, the program requires homebuyer education—a perk for some, but a pain for others.
HomePath Ready Buyer Program
First-time buyers who are open to exploring foreclosed properties should check out the HomePath Ready Buyer program. The program provides up to 3% closing cost assistance toward the purchase of a HomePath property.
Before applying for the assistance grant, you’ll need to complete an online homeownership readiness course. The course costs $75 and includes tons of valuable info for first time homebuyers.
If you go this route, you’ll still need to choose a mortgage product and find a lender willing to accept grant funds for closing costs. Since you’re restricted to HomePath properties (foreclosures owned by FannieMae), a good real estate agent is key. Depending on your location, inventory may be very limited.
Good Neighbor Next Door
Perhaps the most restrictive first-time homebuyer program, Good Neighbor Next Door is also one of the best, offering HUD properties for 50% off the appraised value.
The catch? This incentive program is only available to homebuyers who work full-time as law enforcement officers, pre-K through 12th grade teachers, firefighters and emergency medical technicians.
Eligible participants can purchase a HUD-owned single family home in a qualified revitalization area, and must occupy the home as a primary residence for a minimum period of 36 months.
FHA-qualified buyers can also finance closing costs and pay as little as $100 down, but buyers are free to use a variety of mortgage products. Since many HUD properties are sold as-is, you can use this program along with a FHA 203(k) loan to make repairs.
The Dollar Homes program sells certain HUD acquired properties for just a dollar a piece. That’s right, $1. After a HUD-owned foreclosure has been on the market for 6 months, it’s offered for sale at this deeply discounted price.
The properties can be purchased by local governments and non-profit organizations, who can rehabilitate and resell them to low- and moderate-income families.
The US Department of Agriculture (USDA) offers $0 down loans to homebuyers looking to purchase in an eligible rural area. USDA loans are meant for low- and moderate-income families. To qualify, your income can’t exceed 115% of the regional median.
While some homebuyers may find the geographic and income guidelines overly restrictive, USDA loans are a great fit for many first-time homebuyers. USDA loans offer some of the lowest private mortgage insurance rates available, and allow for flexibility when it comes to financing the cost of repairs.
VA loans are an excellent choice for first-time homebuyers with a history of military service. This government subsidized mortgage program allows eligible buyers to buy a home with $0 down and no private mortgage insurance.
You’re usually eligible if you’ve completed 90 consecutive service days during wartime, or 181 consecutive days during peacetime. Members of the Reserves or the National Guard will need to have at least 6 years of service. Eligibility is also contingent upon character of service—dishonorably discharged veterans likely won’t make the cut.
Eligible veterans can use this benefit to purchase a primary residence only (no second-homes or investment properties) that is a:
- Single-family home
- Multi-unit property, up to 4 units
- Mobile home
- Manufactured home
- VA approved townhome or condo
Since this is a specialized mortgage product, you’ll want to choose a lender with VA loan experience. In addition to its $0 down feature, the VA loan offers competitive rates and relatively inclusive credit requirements. Aim for a 620+ credit score and a DTI less than 45%.
Native American Direct Loan
This program, run by the department of Veterans Affairs, helps Native American veterans and their families purchase properties located on federal reservation lands.
Eligibility requirements are similar to the VA loan program. These loans are also $0 down and don’t require monthly private mortgage insurance.
First-Time Homebuyer Programs by State
In addition to the loan products that we’ve covered here, most state housing authorities offer assistance programs for first-time homebuyers.
These programs range from down-payment grants to closing cost credits and homebuyer education. Some states even offer tax incentives or lower-than-market interest rates to first-time homebuyers.
Depending on the specific guidelines for each program in your state, you may be able to use a combination of first time homebuyer benefits to help you buy your first home.
Our list of state program websites for first-time homebuyers can help you find more specific information.
First-time Homebuyer Program State Directory
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia