There are several programs for first-time buyers that can make buying a home a reality.
We’re going to look at programs that provide down payment assistance, grants, and low down payment loan programs for first-time homebuyers.
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Who is Considered a First-Time Homebuyer?
You may be a first-time homebuyer and not even know it. HUD considers anyone who has not owned a home for the last three years a first-time homebuyer.
HUD’s Criteria for first-time homebuyers
First-Time Home Buyer No Down Payment Home Loans
USDA Loans
The USDA home loan program from the U.S. Department of Agriculture is for low-to-median income borrowers buying a home in a rural USDA-eligible location. They offer 100% financing and require a 620 credit score.
- Minimum 620 credit score
- No down payment
- Low 0.35% mortgage insurance premium
- The home must be in a USDA-eligible location
- Income less than 115% of the area median income
VA Loans
Veterans are eligible for the VA loan program. No down payment or mortgage insurance premiums are needed, most lenders require a 580-620 credit score to qualify.
- Borrowers with a VA certificate of eligibility (COE)
- Minimum 580-620 credit score
- 100% financing
- No MIP
Native American Direct Loan
Veterans who are of Native American descent can qualify for a mortgage, renovte, or build a home on Federal trust land. A 580 credit score is required, and they finance 10% of the property so no down payment is needed.
The Native American Direct Loan (NADL) is a home loan for Native American veterans. Veteran’s Affairs offer these loans and not private lenders.
- Borrower or spouse must be Native American
- 100% financing
- No mortgage insurance premium
- Minimum 580 credit score
- VA home loan Certificate of Eligibility (COE)
Good Neighbor Next Door Program
The Good Neighbor Next Door program provides homes for 50% off for teachers, police officers, and EMT’s, and provides closing cost assistance. A $100 down payment is required with a minimum 620 credit score.
The U.S. Department of Housing and Urban Development (HUD) created the Good Neighbor Next Door (GNND) Program to help strengthen communities by giving law enforcement officers, teachers, and firefighters/emergency medical technicians the ability to purchase homes in communities at a reduced rate. Search for available properties in your area on the HUD Homestore website.
- For qualifying teachers, police officers, and EMT’s
- 620 credit score
- $100 down payment
- 50% off homes on the hudhomestore website
First-Time Homebuyer Low Down Payment Home Loans
FHA Loans
FHA loans are guaranteed by the Federal Housing Administration. Borrowers with a 500 credit score are eligible with 10% down, with a minimum 580 credit score a 3.5% down payment is needed.
FHA loans are popular among first-time homebuyers because of their low down payment and low credit score requirements. A mortgage insurance premium is required for FHA loans regardless of the amount of the down payment, along with an upfront MIP fee of 1.75% of the loan amount.
- 3.5% down with a 580 credit score
- 10% down with a 500 credit score
- Maximum 43%-50% debt-to-income ratio
Conventional Loans
Conventional loans are insured by private mortgage companies, not the government. They require a 5%-20% downpayment and a minimum credit score of 620.
Conventional loans are the most common type of mortgage loan used today. A conventional mortgage doesn’t require PMI with a loan-to-value ratio of 80%, making it an attractive loan option for first-time buyers with 20% to put down.
- 5%-20% down payment
- Minimum 620 credit score
- Maximum 43% DTI ratio
- No PMI with 20% down
Conventional 97 Loan
Conventional 97 loans finance 97% of the purchase price of a home. A 680 credit score is needed with 3% down.
Fannie Mae and Freddie Mac 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.
- 3% down payment
- Minimum 680 credit score
203k Section Loans
FHA 203k loans are a home improvement loan for buyers with at least a 620 credit score and a 3.5% downpayment who looking to purchase a fixer-upper and need additional funds to make renovation or repairs to the home.
If you’re in the market to purchase a fixer-upper home, then an FHA 203k loan may be a perfect fit for you. These rehab loans are an extension of the FHA loan program. FHA 203k loans give you money to purchase a property and cash to renovate it with a single loan, making it an ideal mortgage for first-time homebuyers purchasing a rehab home.
- 3.5% down payment
- Minimum 580 credit score
- Borrow up to 110% of the after repaired value
- Only for primary residences
FHA Energy Efficient Mortgage (EEM)
FHA’s Energy Efficient Mortgage program (EEM) helps homeowners who want to make energy-efficent upgrades to their home by financing the cost of the property plus up to $25,000 in energy-efficent upgrades. They require a 580 credit score with a 3.5% down payment.
FHA Energy-Efficient Mortgages and guaranteed by the U.S. Department of Housing and Urban Development provide funds to buy a property and funds to make energy-efficient upgrades property that will reduce their utility bills. The requirements are the same as an FHA loan, and you will need to use an FHA-approved lender to apply.
- Minimum 580 credit score
- 3.5% down payment
- Up to $25,000 for energy-efficient upgrades
Programs Exclusively for First-Time Homebuyers
HomeReady Loans
The HomeReady loan program is targeted at low-income first-time homebuyers. A minimum credit score of 620 is needed with a 3% down payment. However, your income cannot exceed 100% of the area median income.
The HomeReady loan 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. Your income cannot exceed 100% of the area median income.
- 620+ credit score
- 3% down payment
- Income cannot exceed 100% of area median income
- Homebuyer education required
Home Possible Loans
Home Possible loans were created by Freddie Mac to help first-time homebuyers. A 620 credit score is needed with 3% down, you must be a first-time homebuyer and your income cannot exceed 100% of the area median income to qualify.
The Home Possible loan program is Freddie Mac’s version of the HomeReady program. It is available on your primary residence only and allows for a debt-to-income ratio of 50%.
- 620+ credit score required
- 3% down payment
- Income cannot exceed 100% of area median income
- Homebuyer education required
HomePath ReadyBuyer Loans
The HomePath ReadyBuyer program was created for first-time homebuyers who want to buy a home listed on hudhomestore.com. A 620 credit score is needed with a down payment of 3%. Buyers also get a 3% credit for closing cost assistance.
The Fannie Mae ReadyBuyer mortgage program is available for all properties on the Homepath website. Closing cost assistance is in the form of a grant and does not need to be repaid.
- 620+ credit score
- 3% down payment
- 3% in closing costs assistance
- Income below 80% of area median income
Freddie Mac HomeOne loans
The Freddie Mac HomeOne loan program offers a 3% down payment for qualifying first-time homebuyers with a 620 or higher credit score. HomeOne loans don’t have income limits or geographical restrictions on where the house must be located.
- 620 credit score requirement
- 3% down payment
- No income limits
First-Time Homebuyer Tax Credit
The Federal tax credit for first-time homebuyers ended in September 2010 and is no longer available. President-Elect Joe Biden has promised to bring the first-time homebuyer tax credit back in 2021 that will provide a maximum tax credit of $15,000.
First-Time Homebuyer Grants
Local First-Time Home Buyer Grants and Down Payment Assistance Programs
Most programs and grants for first-time home buyers can be found at the local level. You can check for local grants and programs in your city by visiting the HUD website.
Many of the programs have income limits and maximum home purchase prices you must meet to qualify. Grants and programs range from forgivable loans to down payment assistance.
Chenoa Fund with the FHA Program
Chenoa Funds are a first time home buyer grant offered by CBC Mortgage Agency (CBCMA), a federally chartered government agency in all 50 states that provides down payment assistance for low-income familes whose income is below 115% of HUD’s Area Median Income (AMI).
The assistance funds come in the form of a zero-interest second mortgage in combination with an FHA-insured home loan. Borrowers making less than 115% of the median income will have the second mortgage forgiven after making 36 consecutive, on-time mortgage payments.
Chenoa Fund with FHA qualifications
- Borrowers making less than 115% of AMI assistance is forgiven
- 620 credit score needed
- Mortgage insurance required
- Depending on your credit score, homebuyer education may be required
Chenoa Fund with the HomeReady Program
You can use the Chenoa Fund with conventional 97% LTV loans. Since Chenoa Funds offer 3.5% in down payment assistance and HomeReady loans require 3% down you can use the extra 0.5% to help pay closing costs.
Chenoa Fund with HomeReady qualifications
To qualify for the Chenoa Fund conventional loan program, borrowers must meet the following criteria:
- Minimum 640 credit score
- No income limits in low-income census tracts, 100% of area median income (AMI) for all other properties
- You don’t have to be a first time home buyer
- Homebuyer education course required
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.
To find out if homes in your area are available go to the HUD website and click on your state.
