If you’ve never owned a home before, or if it’s been a while, you may be eligible for first-time homebuyer loans and assistance. First-time buyer loans typically have more affordable interest rates and more flexible requirements, such as lower down payments and credit scores. We often provide buyers with closing costs and down payments through grants or low-interest loans.
According to the National Association of Realtors, the median age of first-time homebuyers is 38 years old.
First-time homebuyer programs by state
Each state in the United States operates a Housing Finance Agency (HFA), which performs functions such as promoting homeownership. Find HFA and other first-time buyer resources by region.
Conventional loans with low down payments
Conventional loans are the most popular type of mortgage and require only a 3% down payment. This makes it an attractive option for first-time homebuyers who don’t have a lot of savings. These low down payment loans include:
- Conventional 97 Mortgage: This conventional loan is backed by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, requires a down payment of just 3%, and requires a minimum credit score of 620. You’ll also need to pay private mortgage insurance (PMI), a type of insurance. Protects your mortgage lender if you stop making loan payments. You pay these premiums until the balance reaches 80% of the home value.
- HomeReady Home Loan: Like the Conventional 97 program, Fannie Mae’s Home Ready mortgage program requires a reduction of just 3% (although it can be cheaper once PMI is taken into account).
- Mortgage possibilities: Freddie Mac’s Home Possible mortgage program is the equivalent of a HomeReady mortgage and has a minimum 3% down payment requirement.
- Home One Mortgage: This Freddie Mac-backed mortgage also offers a PMI reduction of just 3%, but is only available to first-time homebuyers.
Mr. Fannie and Mr. Freddie also support separate 3% down payment programs through the state Housing Finance Agency (HFA), called HFA Preferred and HFA Advantage, respectively.
However, you cannot receive a conventional loan with a low down payment directly from Fannie Mae or Freddie Mac. Instead, you’ll work with a mortgage lender of your choice, such as a bank, online lender, or credit union.
federal first-time homebuyer program
In addition to conventional loans offered by most mortgage lenders, the U.S. government assists mortgage borrowers by sponsoring a variety of mortgage programs. These include:
government-guaranteed home loans
The Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and Department of Agriculture (USDA) sponsor mortgage programs that are often an option for first-time homebuyers. However, these loans are not created or funded by these institutions. These are offered through approved mortgage lenders across the United States, and some lenders specialize in certain types. Here’s an overview:
- FHA loan: With an FHA loan guaranteed by the Federal Housing Administration, you can buy a home with a minimum credit score of 580 and as little as 3.5% down, or a minimum credit score of 500 and as little as 10% down. If your down payment is less than 20%, you’ll pay FHA Mortgage Insurance Premium (MIP), which is similar to the insurance you pay for traditional low down payment loans. However, the difference is that you cannot stop paying your FHA MIP unless you completely refinance your FHA loan.
- VA loan: The Veterans Administration guarantees home loans to eligible U.S. military personnel (active duty, veterans, and surviving spouses). These don’t require a down payment, but there is a financing fee.
- USDA loan: USDA loans require no down payment, but to qualify, you must purchase in a designated rural area and within area-specific income limits.
Good Neighbor Next Door
The Good Neighbor Next Door program, overseen by the U.S. Department of Housing and Urban Development (HUD), targets law enforcement officers, firefighters, emergency medical technicians, and kindergarten through 12th grade teachers. If you work in one of these occupations, you can buy a home in a “redevelopment area” for 50% off, provided you live in the home for at least three years afterwards. You can search for available properties in your state on the program’s website.
HomePath Ready Buyer Program
Fannie Mae’s HomePath ReadyBuyer program is designed for first-time buyers interested in foreclosed homes. By taking the required online homebuyer education course, you can receive up to 3% in closing cost assistance toward the purchase of a foreclosed property that is currently owned by Fannie Mae. However, this program is not suitable for everyone. Not only are your property options limited, but your options (like many foreclosed homes) are likely to require a lot of repairs.
Energy Efficient Mortgage (EEM)
Green upgrades can be expensive, but you can finance them with an Energy Efficient Mortgage (EEM), either a conventional loan or an FHA- or VA-backed loan. We can help. This type of mortgage allows you to roll the cost of energy-efficient upgrades (such as new insulation, more efficient HVAC systems, or double-glazed windows) into your main loan without requiring a large down payment. can.
However, EEM comes with larger mortgage payments (because you borrow more money) and has certain requirements, such as an energy rating. However, it may be worth paying more because you’ll save money on your energy bills in the long run.
Native American Direct Loan (NADL) and Section 184 Program
VA-insured Native American Direct Loans (NADLs) and HUD-insured Section 184 loans provide financing to qualified Native American homebuyers. Section 184 loans require a reduction of just 2.25%. The NADL program has no down payment requirement and is open only to Native American veterans and their spouses.
Down Payment Assistance (DPA) Options
Saving up a down payment can be difficult. This is where down payment support comes in handy. Options include:
Down payment assistance loan
Many first-time homebuyer programs offer a low-cost first mortgage to help you buy a home, followed by a second mortgage to cover your down payment and closing costs. . These second mortgages typically have one of the following structures:
- Low interest loans: A second mortgage that has a low interest rate that is repaid over several years.
- Postpaid loan: An interest-free second mortgage that you repay when you sell, refinance, or pay off the first mortgage.
- Forgivable loans: The second mortgage does not have to be repaid as long as you live in the home for a set period of time (the exact length of time varies by program) and keep your mortgage payments current.
down payment subsidy
A down payment or first home buyer grant is basically free money to cover your down payment and closing costs. This subsidy is typically given to low- or moderate-income borrowers. Low-income or moderate-income individuals are generally defined as people who earn no more than 80% of the area’s median income. There may also be other requirements, such as a minimum credit score or a maximum purchase price for the home.
Down payment savings match
Down payment savings match programs provide matched funds up to a certain amount. Money can only be used for the down payment and closing costs.
One type of matching savings program is an Individual Development Account (IDA). If you are eligible, you will work with a designated counselor to deposit funds into your IDA over a period of time. Follow your savings plan and you’ll receive your matches when you get home.
Support for first generation home buyers
Some states have earmarked funds specifically to assist first-generation first-time homebuyers, people who meet the definition of first-time homebuyers and whose parents do not own a home. In Rhode Island, for example, the state’s Housing Finance Agency is piloting a program that offers eligible borrowers $25,000 in forgivable assistance loans. Minnesota offers a similar program that provides loans of up to $35,000.
Other options for first-time homebuyers
nonprofit programs
Nonprofit program options tend to be reserved for first-time homebuyers with incomes significantly lower than the area median income, or buyers who fit certain demographics or other criteria.
- American Neighborhood Assistance Association: Neighborhood Assistance Corporation of America (NACA) is a nonprofit organization that provides low-interest-rate home loans to low- and moderate-income borrowers with no down payment, closing costs, or mortgage insurance requirements. This nonprofit also does not use your credit score to qualify you. Instead, look at other factors such as your rent payment history.
- Human habitat: If your annual income is 60% or less of the median income in your area, you may qualify for Habitat for Humanity’s homeownership program. To qualify, in addition to not exceeding the income threshold, you must contribute sweat equity, that is, help build your home or another applicant’s home.
Employer-sponsored programs
Employer-assisted housing (EAH) programs assist employees who need housing, typically near their workplaces. This assistance comes in a variety of forms, including forgivable loans combined with required homeownership education.
EAH programs are often limited to certain occupations and may have other restrictions, such as first-time homebuyers, certain years of service requirements, and income limits.
First Home Buyer Program for Students
If you just graduated from college, you may be eligible for help buying your first home. For example, Ohio State offers a Grads for Grads program that provides up to 5 percent down payment assistance for those who have completed an academic program within the past 48 months. These programs usually come with a condition that you stay for a certain period of time (5 years in Ohio) or you must repay the funds.
mortgage tax deduction
If you are a first-time homebuyer, you may be eligible for federal tax relief, typically up to $2,000 per year, through a Mortgage Credit Certificate (MCC). There are fees associated with purchasing an MCC, but if you plan on staying in your home for a long time, the math may work out in your favor.
Additionally, homeowners who itemize their taxes can deduct the interest paid on their mortgage on their annual federal income tax return. Married couples filing jointly can only deduct up to $750,000 in interest on their mortgage debt, and singles can only deduct up to $375,000.
How to apply for a first-time homebuyer loan or program
Your mortgage lender can help you determine whether you qualify for a first-time homebuyer program and, if so, apply. You can also check your state’s Housing Finance Agency (HFA) website to review eligibility criteria and take the next steps to apply. There are forms to fill out, but the rewards are well worth the time investment.
