Becoming a homeowner is still seen as the American Dream. However, being a first time home buyer can be a frustrating situation.
Traditional mortgages require high down payments and can be fairly difficult to qualify for.
Fortunately, there are many first-time home buyer programs, grants, and down-payment assistance available.
1. HUD First-Time Home Buyer Programs
You can check different first-time home buyer grants in your state by going to the HUD website. You can also check your local county website for more information on first-time buyer and down payment assistance programs.
Some states and counties offer various forms of homebuyer assistance programs that offer grants for down payments and closing costs for borrowers.
Programs for Public Housing Residence
For residence in a public housing situation may qualify to buy the home they’re renting with HUD’s public housing program. Public Housing Authorities (PHA) are able to sell their public housing home/apartment/condo to organization residences.
2. Good Neighbor Next Door Program
This first time home buyer program offered by HUD provides homes for 50% off for teachers, firefighters and police officers.
A $100 down payment is all that is required for this great program. Search for available properties in your area on the HUD homestore website.
3. HUD Dollar Home Program
HUD (Department of Housing and Urban Development) sells foreclosed FHA homes that have been on the HUD website for more than 6 months.
Local Governments can offer the homes to low income families to help revitalize a community. You can view these eligible HUD homes on the HUD website.
4. HomeReady HomePath Mortgage
The HomeReady Homepath program is targeted at first-time home buyers. After taking a required buyer education course you can receive 3% towards closing costs on a mortgage loan. A low down payment of just 3% is required, which is even less than FHA loans.
This program is exclusively for first-time homebuyers who plan to occupy the property as their primary residence. You will also need to have a real estate agent to purchase a home through the program.
5. FHA Loan Program
FHA loans help more first time homebuyers become homeowners than any other type of mortgage program available. The guidelines to qualify for these loans are much more flexible than a traditional home loan.
It is usually recommended to work on improving your credit scores before applying for a mortgage.
If you have a minimum 580 credit score you can qualify for an FHA loan with just 3.5% down. For a $200,000 house that means you will just need $7,000 for your down payment.
The best thing for first-time home buyers is that your down payment for an FHA loan can be a gift from a family member or friend. This means you can get into your new home with little, or no money upfront.
FHA Loan Requirements
- 500-579 FICO score with 10% down
- 580+ FICO score with 3.5% down
- Tax returns, bank statements W2’s, and paycheck stubs required
- Primary residence only, no investment properties
- Mortgage insurance Premium (MIP) is required regardless of the loan-to-value ratio
- Steady employment
6. USDA Loans
The USDA home loan program from the U.S. Department of Agriculture is for low-to-moderate income homebuyers in rural areas of the country.
If you are buying a home that is in a USDA eligible location and make an average income or less you could qualify for a USDA loan.
While it may sound like only very small towns and rural areas will be eligible. However, almost 97% of the country is in an eligible USDA location. USDA mortgage are perfect for first-time home buyers because there is NO down payment required.
They are also less expensive than FHA loans because mortgage insurance (MIP) is a half a percent cheaper for USDA mortgages.
7. VA Loans
The Veterans Administration has a home buyer program for active and retire Vets. VA loans require NO down payment, making the upfront costs associated with getting a mortgage greatly reduced.
The VA loan is the cheapest mortgage available because no mortgage insurance is required. This makes VA home loans perfect for any first time home buyer who is eligible.
8. 203k Rehab Loans
If you’re in the market to purchase a fixer upper home then a 203k loan may be a perfect fit for you. These rehab loans are an extension of the FHA loan program.
Instead of having to get two separate loans to purchase a home, and to get cash for upgrades or repairs. 203k home loans give you money to purchase a home and cash to renovate it with a single loan. Making it an ideal mortgage for first-time homebuyers purchasing a rehab home.
The requirements for FHA 203k loans are similar to a standard FHA loan, except the credit score requirement is 640.
9. Conventional 97% LTV 3% Down Program
Fannie Mae and Freddie Mac are two types of Government sponsored entities that provide a secondary market in buying mortgages.
Fannie and Freddie created a mortgage loan program that helps first-time buyers achieve the dream of homeownership. Named, a conventional 97 mortgage, it allows borrowers to put a low down payment of just 3% instead of up to 20% for a conventional loan. The down payment, like with FHA loans, can also be a gift from a friend or family member.
10. Native American Direct Loan
The Native American Direct Loan (NADL) is a type of Veteran home loan program for Native American Veterans. NADL allow for qualifying Native Americans to purchase eligible property on recognized trust land.
- Must have a valid Certificate of Eligibility from the Veteran’s Administration
- Property must reside on a Federally recognized trust or Alaska Native corporations
- NADL is for owner occupants only, no investment properties
- Credit score of 640+ is required
- Borrowers with steady income
VA provides direct home loans to eligible Native American Veterans to finance the purchase, construction, or improvement of homes on Federal Trust Land, or to refinance a prior NADL to reduce the interest rate.
Ask your lender
Not every mortgage lender will be able to approve first-time home buyers who are using a grant, or some type of assistance. Make sure you ask your loan officer if they are able to use the type of grant you have.
Other lenders may be able to help you find down payment assistance or grants for first-time home buyers that will help you achieve your dream of home ownership.
Randall has over 15 years of experience in the mortgage and credit industries. He spends a chunk of time helping consumers understand their credit, advise them on how to increase their credit, and lending his mortgage expertise to help them find the right type of loan. Randall lives in Dallas, Texas with his two sons.