If you have never owned a home, you may feel overwhelmed at times with the homebuying process. But you’re in luck because there are many federal and state programs that make it easier to buy your first home. This article highlights several of the best first-time homebuyer programs. If you have questions about any of them or want to apply for a loan, talk to your loan adviser today.
Conventional Low-Down Payment Loans
Conventional loans are the most common mortgage in the US and many only require a 3% down payment. This could make them an attractive choice for a first-time buyer with good credit who does not have a lot of money to put down. Some of the available conventional loans with low money down options for first-time buyers are:
- Conventional 97: This is a conventional loan backed by Fannie Mae and Freddie Mac with only a 3% down payment, and you only need a 620 credit score. However, you will need to pay for mortgage insurance until you have 20% equity in the property.
- HomeReady: This is a Fannie Mae program that also only requires 3% down.
- Home Possible: Freddie Mac’s program is similar to the HomeReady program with only 3% down required.
- HomeOne: This is a Freddie-backed mortgage that has a 3% down option that is only available to first-time buyers.
Your loan adviser can talk to you about low-down payment conventional loans, but they are not issued directly from Fannie Mae or Freddie Mac. Rather, you will work with your loan provider, which could be a bank, credit union, or mortgage broker, among others. Different lenders have different standards for qualifying for a 3% down conventional mortgage.
Government-Backed Mortgages For First-Time Buyers
Government agencies also offer guaranteed mortgages for first-time buyers and others who may have more difficulty buying a home. Loans guaranteed by the following agencies are issued by approved mortgage lenders, so speak your loan adviser about these options:
- FHA: These loans are backed by the Federal Housing Administration and allow you to buy a home with only a 580-credit score and just 3.5% down, in some cases. If you have a 500-credit score, you need to put down 10%. The FHA program is popular with first-time buyers because the lending criteria are more forgiving than with conventional loans. You can even have a bankruptcy in your past, as long as you are paying your bills on time today. FHA loan rates are competitive with market rates.
- VA: The Veterans Administration backs home loans for military members and retired military. There is no down payment and the rates are lower than FHA loans.
- USDA: If you want to buy your first home in a rural area, you may be able to get a 100% financing mortgage through a USDA-approved lender.
Good Neighbor Next Door
If you are a public employee, such as a firefighter, police officer, school teacher, or EMT, you may be able to get a loan through HUD’s Good Neighbor Next Door program. This program offers up to 50% off certain HUD-owned properties that have been foreclosed on. You can see the properties available in your area on the HUD website.
Ask Your Employer About First-Time Buyer Programs
Some larger employers may offer assistance for first-time homebuyers. More companies offer housing incentives to help workers pay for down payments and closing costs. Your company might offer you a loan that is forgiven after a certain number of years, while others may offer grants that you do not need to pay back.
Not all employers offer home purchase assistance, and many of the programs are joint endeavors through the state government. Talk to your HR department to learn if there are any programs that offer down payment or closing cost help.
FHA 203(k) Loans
A program related to FHA loans is the 203(k) program that allows you to fix up a distressed property. It can be a good choice for a first-time buyer who wants to buy a home for less than market value and renovate it. This FHA program loan will consider what the home will be worth after improvements are made. You can borrow the funds for the repairs to finish the project and have it as part of your mortgage payment.
State First-Time Buyer Loan Programs
Most states offer their own first-time buyer assistance programs. For example, the My First Texas Home program offers a low-cost, 5% loan to help cover down payment or closing costs, and the credit requirements are lenient. The program is only for first-time buyers, or those who have not owned a home in at least three years. You need to have at least a 620 credit score.
Many states have similar programs to the one in Texas, so talk to your lender about the options in your state. Many of these programs will forgive a loan for down payment or closing cost help if you live in the home for at least three or five years.
First-time homebuyers can access many loans and grants that can help to make buying a home easier. First-time buyer help also can make it more affordable to pay a down payment and closing costs, which are two major obstacles for first-time buyers. Talk to your loan provider about your first-time buyer loan and grant options, and remember: There may be additional options in your state and city for first-time buyers, so check with your state and local government.