Top 7 Loan Programs for New Home Buyers in 2024

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 home loan, talk to your loan adviser today.

Most mortgage lenders consider first-time home buyer is generally defined as an individual who has not owned a home within the past two to three years.
First-time home buyers constitute 45 percent of the home purchase market and benefit from specialized programs tailored to make homeownership feasible and affordable. These first time home financing programs often offer low down payment mortgages, loans with reduced mortgage rates, and assistance with closing costs.

Numerous mortgage lenders and first time homebuyer programs adhere to the U.S. Department of Housing and Urban Development’s (HUD) classification of a first-time homebuyer. According to HUD, individuals who haven’t possessed a principal residence in the three years leading up to the purchase of a new home can qualify as first-time buyers loans.

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 loan 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 on VA loans 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.

Qualifying as a First-Time Home Buyer

To avail most first-time home buyer benefits, individuals acquiring a single-family home as their primary residence can meet the criteria in one of the following three ways:

  1. You have never previously purchased a single-family home.
  2. You have not owned a home in the last three years, encompassing both sole and joint ownership.
  3. You are a displaced homemaker or single parent who has never owned a home, except for joint ownership with a spouse in the past three years.

Furthermore, meeting the eligibility requirements for a first-time home buyer loan typically involves maintaining a stable household income and managing a reasonable debt load. Further details on this will be discussed later.

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 van be taken out as a 1st or 2nd mortgage loan and the lender 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. The other alternative options would be a HELOC credit line or personal loan.

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.

In the process of buying a home, selecting a lender represents the second most significant decision after choosing the actual home. Locating the right lender requires time and effort, aiming for the optimal combination of a favorable interest rate, minimal fees, and exceptional service. Consider the following tips:

  • Inquire with family and friends regarding their experiences with lenders. Did they have a positive encounter? Would they recommend the lender?
  • Approach your existing bank or primary financial institution and assess their offerings to secure your business.
  • Consider exploring options with a credit union or a local savings bank.
  • Include a couple of online-only mortgage lenders in your considerations for a comprehensive evaluation.

Summary on New Home Loan Opportunities

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.

Purchasing your first home is a blend of excitement and challenge, prompting us to offer a diverse array of tools and resources to guide you through the first time home loan process. Whether you’re initiating your savings journey or have a specific property in sight, we’re here to assist you in obtaining the keys to your first home.

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.

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