10 First-time Homebuyer Loans


Coming up with a large down payment is the biggest challenge for potential homebuyers.

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

In this article, we will go over the top 10 first-time homebuyer home loans.

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10 First-Time Homebuyer Loan Programs

FHA Loans

3.5% down with a 580 minimum credit score. 

USDA Loans

No down payment needed, 620+ credit scores, income limits, must be in USDA eligible location.

VA Loans

No down payment or mortgage insurance 

FHA 203k Loans

Rehab loan for fixer-upper. 3.5% down 620 minimum credit score.

Conventional 97

Minimum 680 credit score, 3% down.

HomeReady Loan

620 credit score, 3.5% down, income limits

Home Possible Loan

620 credit score, 3.5% down, income limits

Local HUD Programs

Buy foreclosed properties on the HUD Homestore website using local HUD programs.

Good Neighbor Next Door

Teachers, law enforcement officers, or EMTs get 50% off HUD home with $100 down.

HUD Dollar Home Program

HUD sells homes to counties for $1 to offer as low income housing.

1. FHA Loans

FHA loans help more first-time homebuyers become homeowners than any other type of mortgage program. Borrowers with a 500 credit score can qualify with a 10% down payment. Borrowers with a 580 credit score need just a 3.5% down payment.

For a $200,000 house, that means you will just need $7,000 for your down payment.

Your down payment 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

• 1% of student loan debt added to DTI ratio

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.

While it may sound like only tiny 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.

2020 USDA Loan Requirements

• 640 minimum credit score

• Total household income less than 115% of AMI

• Maximum 43%-50% debt-to-income ratio

• Two years of stable employment history

• Occupy the property as your primary residence

• Proof of income (Two years of tax returns and W2's)

• Buy a home in a USDA-eligible location

• Work with a USDA approved lender

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.

2020 VA Loan Requirements

• 580-620 minimum credit score

• 50% maximum debt-to-income ratio

• Past 2 years of tax returns and W2's

• 24 month waiting period after a bankruptcy or foreclosure

• For primary residence only

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 getting two separate loans to purchase a home and getting cash for upgrades or repairs a 203k loan gives you money to purchase a home and the cash to renovate it with a single loan.

FHA 203k loans’ requirements are similar to a standard FHA loan, except the credit score requirement is 640.

2020 FHA 203k Loan Requirements

Minimum 620 credit score

24 month waiting period after a bankruptcy or foreclosure

 Maximum 43%-50% debt-to-income ratio

• For primary residence only

5. Conventional 97 Loans

Fannie Mae and Freddie Mac are government-sponsored entities that provide a secondary market in buying mortgages.

Fannie and Freddie created the 97% loan-to-value (LTV) mortgage loan program that helps first-time buyers achieve the dream of homeownership.

Conventional 97 mortgage loans allow borrowers to put a low down payment of just 3%. The down payment can 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 Loan

HomeReady / Home Possible 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 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

Max loan-to-value

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

Debt-to-income

43% - 50%

50%

8. Local HUD Programs

HUD has local programs in all 50 states that assist homebuyers, including down payment and closing costs assistance.

Check out local HUD programs.

9. Good Neighbor Next Door Program

The Good Neighbor Next Door program provides homes for 50% off for teachers, police officers, and EMT’s.

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.

Good Neighbor Next Door Eligibility Requirements

  • Full-time teacher, law enforcement officer, or EMT who works for an agency, school or department in the same area the home is located.

  • Must not have previously purchased a Good Neighbor Next Door home  

  • Certify your intention to continue working as a law enforcement officer, teacher, firefighter or EMT for a year after the home purchase.

  • Owned any home in the 12 months prior to bidding on an eligible property

  • Certify your intention to continue working as a law enforcement officer, teacher, firefighter or EMT for a year after the home purchase.

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 over your budget.

How much home can you afford calculator

Ask your lender

Not every mortgage lender will approve first-time homebuyers who are using a grant or some 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.