First-Time Home Buyer Programs and Grants



First-Time Home Buyer Programs and Grants

Coming up with a large down payment is challenging for many first-time homebuyers.

Fortunately, there are several programs for first-time buyers that can make buying a home a reality.

In this article, we will go over 10 low down payment loans for first-time buyers as well as first-time homebuyer down-payment assistance programs and grants.

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10 First-Time Homebuyer Loan Programs

  • FHA Loans

  • USDA Loans

  • VA Loans

  • FHA 203k Loans

  • Conventional 97 loan (3% down)

  • HomeReady Loan Mortgage

  • Home Possible Loan Program

  • HUD first-time homebuyer programs

  • Good Neighbor Next Door Program

  • HUD Dollar Home Program

1. FHA Loans

FHA loans help more first time home buyers 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.

FHA loan credit requirements

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 homebuyers 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.

2020 FHA Loan Requirements

  • 580 credit score with 3.5% down

  • 500-579 score with 10% down

  • Maximum 50% debt-to-income ratio

  • Two years of stable employment and income history

  • For primary residence only

  • 24 month waiting period after a foreclosure or bankruptcy

2. USDA Loans

The USDA home loan program from the U.S. Department of Agriculture is for low-to-moderate-income home buyers in rural areas of the country.

If you are buying a home that is in a USDA eligible location and makes 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 loans are perfect for first-time homebuyers 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.

3. VA Loans

The Veterans Administration has a home buyer program for active and retired Vets. VA loans require NO down payment, reducing the upfront costs associated with getting a mortgage.

VA mortgage loans are the cheapest mortgage available because no mortgage insurance is required. This makes VA loans perfect for any first-time homebuyer who is eligible.

4. 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.

5. Conventional 97 Loan

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 97% loan-to-value (LTV) mortgage loan program that helps first-time buyers achieve the dream of homeownership. These conventional 97 mortgage loans allow 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.

6. HomeReady Loan Program

The HomeReady loan program is targeted at first-time home buyers. 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.

7. Home Possible Loan Program

The Home Possible loan program by Freddie Mac is similar to the HomeReady program. It’s designed for low-to-median income first-time homebuyers requiring just a 3% down payment.

Home Possible Loan Benefits

  • 3% down payment

  • Low interest rates

  • Alternate income sources excepted

  • Fixed mortgage payments

  • Low mortgage insurance rates

  • PMI can be canceled at 80% LTV

HomeReady / Home Possible vs. FHA

FHA Loans vs. HomeReady / Home Possible Loans

FHA Loan

HomeReady Loan

Down Payment

580 with 3.5% down
500 with 10% down

3%

Minimum Credit Score

500-580

620

Income Limits

No income limit

80% of area median income
Varies by county

Mortgage Insurance

Up-front MIP payment
Monthly MIP payments

* >10% down MIP cancels in 11 yrs
* <10% down MIP required for the life of the loan

Monthly PMI payments

* PMI is canceled when LTV ratio reaches 78%

Income Sources

Only applicant's income can be used

Can use income from parents, renters, or anyone else living in the home

Maximum LTV Limits

96.5%

97% LTV, 105% TLTV with Affordable Seconds®, and 97% HTLTV for 1-unit properties.

Homebuyer Education

Not required

4-6 hours of homeownership education courses
Cost: $75

8. HUD First-Time Homebuyer Programs & Grants

You can check different first-time homebuyer down payment programs and 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 and grants for down payments and closing costs for home buyers.

Programs for Public Housing Residence

For residences in public housing, the situation may qualify to buy the home they’re renting with HUD’s public housing program. Public Housing Authorities (PHA) can sell their public housing home/apartment/condo to organization residences.

9. 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.

10. 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 six months.

Local Governments can offer homes to low-income families to help revitalize a community. You can view these eligible HUD homes on the HUD website.

Click here for more information on the dollar home program with HUD

 

Budget for all Homeownership Costs

Being a homeowner comes with more costs than just principal and interest payments. Property taxes, homeowners insurance, mortgage insurance premiums, and HOA fees may also be required. All of which, minus HOA fees are usually included in your monthly mortgage payment.

Know what you can afford so you don’t waste your time looking at homes that are over your budget.

How much home you can afford calculator

Ask your lender

Not every mortgage lender will be able to approve first-time homebuyers who are using a grant or some type of assistance. Make sure you ask your loan officer if they can use the type of grant you have.

Other lenders may be able to help you find down payment assistance or grants for first-time homebuyers that will help you achieve your dream of homeownership.

Check if you qualify for one of these homebuyer programs