Table of Contents
first time home buyers:
Buying a house can be overwhelming, especially if it’s your first time. It’s completely normal to have questions and uncertainties. One common concern is how to obtain down payment assistance or find additional support for covering your closing costs.
We will discuss a few of the best grants, mortgages, and initiatives for new home buyers to help you understand the choices that are out there.
Often, you’re considered a first-time buyer if you haven’t owned your principal residence in the past three years.
What is a first time home buyer program?
First time home buyer programs are designed to make the dream of homeownership more attainable for individuals who have never owned a home before or haven’t owned one in a while. These programs offer different options, such as a mortgage with a more favorable interest rate, a reduced down payment requirement, and additional benefits like assistance with down payment and closing costs.
Here’s how to compare first time home buyer financing options and find what’s best for you.
Overview: Best loans for first time home buyers
Here are six first-time home buyer loans and programs that are worth exploring.
– FHA loans are mortgages insured by the government, allowing you to put down as little as 3.5%.
– If you’re a qualified military borrower, VA loans offer the benefit of zero down payment.
– USDA loans provide financing options for rural and select suburban properties, requiring no down payment.
– Conventional loans backed by Fannie Mae and Freddie Mac only require a 3% down payment. Remember, you’ll need to go through a mortgage lender to secure these loans.
– State first time home buyer programs offer location-specific loans and assistance programs, such as grants or tax credits, to help you with your home purchase.
FHA loans
FHA loans are a great option for first-time home buyers, as they only require a 3.5% down payment. If your credit score is below 580, you’ll need to put down 10%. Overall, FHA loans have more lenient qualifications compared to conventional loans.
Sure! You may be eligible for an FHA loan with a credit score in the 500s, but most approved borrowers typically have higher scores. In February 2024, the average FICO score for FHA borrowers purchasing a home was 687, as reported by ICE Mortgage Technology.
FHA loans also necessitate FHA mortgage insurance, which serves to safeguard the lender’s investment in the loan in case of default. As part of their closing costs, borrowers have the option to pay an upfront premium, along with an ongoing premium included in their monthly mortgage payment.
USDA loans
The U.S. Department of Agriculture provides loans directly to individuals looking to buy homes and also supports loans through private mortgage lenders. And no, you don’t need to reside on a farm to be eligible for a USDA loan. This program focuses on rural and certain suburban regions, offering the benefit of 100% financing or no down payment required.
USDA loans have income limitations, which vary by region and the type of loan you apply for.
Conventional loans (Fannie Mae and Freddie Mac)
Fannie Mae and Freddie Mac power the home loan industry, collaborating with mortgage lenders to provide a variety of conventional loan options, including those with low down payment requirements.
Fannie Mae’s HomeReady loan is specifically tailored for individuals with low income and credit scores of 620 or above. It offers the benefit of requiring only a 3% down payment. A notable advantage of this loan is that borrowers have the opportunity to eliminate their mortgage insurance once they have accumulated 20% equity in their home. This sets it apart from FHA loans, where borrowers can only cancel their mortgage insurance after 11 years if they initially made a down payment of 10%.
Freddie Mac offers the Home Possible loan for low-income borrowers, allowing a minimum down payment of only 3%. Borrowers have the option to use sweat equity, gifts, grants, or loans to meet the down payment requirement.
Home renovation loan options
If you’re planning to tackle some renovations, here are a few mortgage options that can help with the cost.
- An EEM can assist borrowers in financing energy-efficient homes or upgrades that save energy. This means you’ll experience reduced energy costs and a cozier home faster, rather than slowly working on energy-saving improvements.
- FHA 203(k) loans cater to buyers looking to take on a home renovation project. This unique FHA-backed loan takes into account the future value of the property post-improvements, enabling you to finance the renovation costs within your primary mortgage.
- The CHOICERenovation loan, offered by Freddie Mac, is a great option for financing both the purchase of a home and any renovations needed, all with low down payment requirements.
- Fannie Mae’s HomeStyle offers a conventional loan choice for those looking to purchase and renovate their home. First-time home buyers eligible for the HomeReady program can take advantage of a 3% down payment option.
- It can be a bit challenging to find lenders who offer VA renovation loans, even though they are available to qualified military borrowers.
We have provided a list of six resources that you can access as a first time home buyer. Take some time to think about your personal requirements as a borrower when exploring these options. Certain loans and programs may be more suitable for individuals with low credit scores, whereas others are designed specifically for buyers in your local area.
If you meet the requirements for any of these programs or products, they can support you in purchasing a home without depleting your savings for a down payment. Moreover, they can guide you through the process of managing additional expenses such as mortgage insurance and ensure that your monthly payments remain affordable.
Types Of First Time Home Buyer Programs
Buying your first home can be daunting when you consider all the costs involved. However, there’s good news! There are numerous loan programs and grants available to help you with your down payment and closing costs. These include charitable and government-sponsored programs. On top of that, you may also be eligible for local and federal tax credits that can reduce these expenses. Additionally, educational programs are there to guide and support you throughout the entire process.
Here are a few of the most sought-after loans and grants available for first-time home buyers.
Government-Backed Home Loans
Qualified first time home buyers can benefit from a government loan or a mortgage loan supported by the federal government, which allows them to purchase a house without making any down payment. We will provide further information about these loan options later in the article.
Down Payment Assistance (DPA)
Buying a home usually requires a significant down payment, which is a percentage of the total purchase price. Most mortgage loans mandate a down payment. Luckily, many lenders are open to providing down payment assistance (DPA) to help with the initial costs.
Down payment assistance programs usually consist of grants or low to no-interest loans, with many being specifically designed for first-time home buyers. The assistance programs you are eligible for can affect how you can utilize your funds and determine if repayment is required.
Down Payment Assistance Loans
Uncertain about your ability to afford a down payment by yourself? You might also qualify for down payment assistance programs offered by certain loan types, which can help decrease the amount you need to pay upfront when purchasing a home.
choices you have are second mortgages, deferred payment loans, and forgiven loans. With second mortgages, you need to pay them off alongside your main mortgage. Deferred payment loans, on the other hand, do not need monthly payments but must be settled when you move, sell, refinance, or pay off your main mortgage.
Loans may also be eligible for forgiveness after a certain period of time. Nevertheless, you must repay the loan if you relocate, sell your property, refinance, or pay off your primary mortgage before the specified number of years elapses. Failing to do so will result in a violation of the loan forgiveness agreement.
FAQs About First Time Home Buyer Programs
If you haven’t owned a home in the last 3 years, you can be classified as a first-time home buyer. This means that you may qualify for first time home buyer programs, even if you have owned a home before, as long as it has been at least 3 years since your last ownership.
First time home buyer programs offer affordable options for financing your home purchase. These programs enable eligible buyers to purchase a house with minimal or no down payment, reduced closing costs, and more lenient credit score criteria. Additionally, some programs provide state and federal tax credits to qualified buyers.
To be eligible for a first-time home buyer program or loan, you must meet the specific requirements set by the mortgage lender, agency, employer, or financial institution.
Income limits may apply to qualify for loans and programs designed to help moderate to low-income borrowers.
Before applying for a first-time home buyer program, grant, or mortgage, make sure to review your credit score, DTI, and other qualifying factors.
We use primary sources to support our work. chequepay’s authors, reporters and editors are subject-matter experts who thoroughly fact-check editorial content to ensure the information you’re reading is accurate, timely and relevant.
“Selling Guide” Fannie Mae. Accessed on Jan. 22, 2024.
“HUD Handbook 4000.1” U.S. Department of Housing and Urban Development. Accessed on Jan. 22, 2024.
“VA Home Loan Guaranty Buyer’s Guide” U.S. Department of Veterans Affairs. Accessed on Jan. 22, 2024.
“Single Family Housing Guaranteed Loan Program” U.S. Department of Agriculture. Accessed on Jan. 22, 2024.
“About Good Neighbor Next Door” U.S. Department of Housing and Urban Development. Accessed on Jan. 22, 2024.
“Frequently Asked Questions (FAQs)” HomePath by Fannie Mae. Accessed on Jan. 22, 2024.
“Native American Direct Loan” U.S. Department of Veterans Affairs. Accessed on Jan. 22, 2024.
“Section 184 Indian Home Loan Guarantee Program” U.S. Department of Housing and Urban Development. Accessed on Jan. 22, 2024.
“NACA can help you become a homeowner” Neighborhood Assistance Corporation of America. Accessed on Jan. 22, 2024.
“Apply for a Habitat house” Habitat for Humanity. Accessed on Jan. 22, 2024.
“Grants for Grads” Ohio Housing Finance Agency. Accessed on Jan. 22, 2024.