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What to Know About First-Time Homebuyer Loans

These programs may offer low or no down payments, down payment assistance and other benefits—but eligibility requirements are ultra specific.

Written by Ben Luthi / September 21, 2022

Quick Bites

  • If you're a first-time homebuyer, you may qualify for specialized programs to help you buy a house.
  • The program typically comes in the form of a lower down payment requirement, down payment assistance or closing cost assistance.
  • Prospective homebuyers should consider all of their options before settling on one.

With an average age of 33, first-time homebuyers make up a little more than a third of all homebuyers, according to a report by the National Association of Realtors.[1] But unlike repeat buyers, first-timers don't have the benefit of using equity from a previous home to put toward a new one. As a result, it can take longer to meet traditional down payment requirements, and they tend to finance more of their purchase.

Fortunately, there are first-time homebuyer programs available that can make getting into a home easier for aspiring homeowners, typically in the form of a specialized loan program, down payment assistance and more.

If you're thinking about buying your first home or it's been a while since you've owned a property, here's what you need to know about your options.

Inside this article

  1. What is a first-time homebuyer?
  2. Types of homebuyer programs
  3. How to get approved for a loan

What is a first-time homebuyer?

Traditionally, a first-time homebuyer is someone who has never owned a home before.[1] However, the U.S. Department of Housing and Urban Development (HUD) also defines the term as someone who meets other criteria, including[2]:

  • A person who hasn't owned a principal residence for at least three years after the sale of their last home—if a married couple is buying a home together, only one needs to meet this requirement for both to qualify

  • A single parent who has only owned a home with a former spouse while married

  • A displaced homemaker who has only owned with a spouse

  • A person who has only owned a principal residence that was not permanently affixed to a permanent foundation, such as a mobile home

  • A person who has only owned a property that wasn't in compliance with state, local or model building codes, and it would cost more to bring it into compliance than to construct a permanent structure

If any of these describe you, you may be eligible for one of the many first-time homebuyer loan and down payment or closing cost assistance programs.

Types of first-time homebuyer programs

Depending on where you live, you may have access to multiple types of home loan programs and other programs designed to help first-time homebuyers. Here's what to look for:

  • Loan programs: Some conventional lenders may offer loans with down payments of as little as 3% or even 0%.[3-4] Additionally, government-backed loans can allow you to get approved with a lower down payment, lower credit score and even lower income than conventional loan programs.[5-7]

  • Down payment assistance: These programs can help you meet the down payment requirements to buy a home, either in the form of a grant or a loan. You don't have to repay a down payment assistance grant, and if it's a loan, you typically don't have to repay it until you move, refinance your loan or sell the home. In some cases, the loan can be forgivable. Program requirements can vary depending on where you live and the organization providing the assistance. "This allows the buyer to not use all of their own funds to purchase a home," says Dirk Hellige, a mortgage loan officer with Bank Iowa. This can be helpful if your cash reserves are tight and you want some money left over for emergencies.[8]

  • Closing cost assistance: As with down payment assistance programs, these programs help you with some of the secondary but significant costs of buying a home—closing costs can range from 2% to 6% of the loan amount. This can also come in the form of a grant or a loan.[9-10]

Federal first-time homebuyer loan programs

The federal government offers a few different loan programs to help homebuyers who may not qualify for conventional loan options. While these programs aren't specifically designed for first-time homebuyers, they can provide some significant benefits if you're eligible.

"All programs have restrictions and requirements," says Hellige, "and the buyers must meet those guidelines in order to take advantage of a first-time buyer program."

FHA loans [5, 11]VA loans [6, 12]USDA loans [7, 13]
Down payment requirement3.5%NoneNone
Minimum credit score580 (500 with a 10% down payment)Typically 640Typically 640, but can be lower in special circumstances
Special qualificationsNoneMust be eligible member of the military communityMust buy a home in an eligible rural area

What Is a USDA Loan?

What Is a USDA Loan?

U.S. Department of Agriculture mortgages are designed for rural, low-to-moderate-income homebuyers.

Find out more

Fannie Mae and Freddie Mac first-time homebuyer loan programs

Fannie Mae and Freddie Mac are not government agencies. Rather, they're private government-sponsored enterprises (GSEs) that back conventional mortgage loans and provide standards for conventional lenders.[14]

Depending on your situation, you may qualify for one of these programs offered by the two GSEs:

  • Freddie Mac HomeOne: First-time homebuyers can qualify for a down payment as low as 3%, with no income limits. Only one-unit properties are eligible.[15]

  • Freddie Mac Home Possible: First-time and other eligible homebuyers with an income of 80% or less than the median income for their area can qualify for this program. It offers a down payment of as little as 3%, which can come in the form of gifts or loans from family, employer-assistance programs, secondary financing or even sweat equity. Eligible properties include those with one to four units, condos and planned-unit developments and manufactured homes (with certain restrictions).[16]

  • Fannie Mae HomeReady: Both first-time and repeat homebuyers with low incomes can qualify for a 3% minimum down payment with reduced mortgage insurance requirements. Borrowers can pair the program with down payment and closing cost assistance, among other funding options, and don't have to use any of their own personal funds up front.[17]

  • Fannie Mae HomePath Ready Buyer: First-time homebuyers with an income that's 100% or below the median income for the area where they're planning to buy may qualify for this program. It allows them to buy foreclosed properties owned by Fannie Mae with a down payment as low as 3%. Borrowers may also qualify for up to 3% in closing cost assistance.[18]

State- and nonprofit-based first-time homebuyer loan programs

Depending on where you're planning to buy a home, you may be able to find assistance from various programs through state and local agencies, as well as nonprofit organizations. You can find a list of assistance programs and other resources for individual states on the HUD website.

Here are just a few examples:

  • California Housing Financing Agency: Offers down payment and closing cost assistance and specialized loan programs.[19]

  • Habitat for Humanity: The international nonprofit organization has affiliates in many states to provide homes to low-income families, which are built by volunteers.[20]

  • Texas Department of Housing and Community Affairs: Offers loan programs paired with up to 5% of the loan amount in the form of down payment and closing cost assistance.[21]

Lender first-time home loan programs

Some conventional lenders may have their own first-time homebuyer programs that offer up to 100% financing, sometimes with no private mortgage insurance requirement.[4]

As you shop around for a loan, search for lenders that offer specialized loan programs for first-time homebuyers that you may be able to take advantage of.

How to get approved for a home loan as a first-time homebuyer

If you're planning to buy a home for the first time, it's important to understand what to expect. While some of these programs can provide assistance in your endeavor, the eligibility requirements can vary by program, so it's important to read the terms and conditions before you apply.

Other basic tips to help include:

  • Improve your credit: Most mortgage loan programs require a credit score of 620 or above, but some may go lower. Even if you meet that requirement, having a score in the mid-700s or higher can improve your chances of securing a low interest rate.[22]

  • Pay down debt: Lenders typically need a debt-to-income ratio of 43% or lower, which means that no more than 43% of your gross monthly income goes toward debt payments.[23-24] However, some loan programs may go as high as 50%.[25]

  • Crunch the numbers: As you look at different homes, try to estimate how much the loan would cost you in loan payments, as well as in mortgage insurance, homeowners insurance and property taxes. Even if you're preapproved for a certain amount, it's crucial that you break it down into the monthly cost to ensure it's affordable. Try a tool like MortgageCalculator.org to gauge how loan amounts, interest rates and terms affect monthly dues.

  • Shop around: It's a good idea to request quotes from multiple lenders to ensure that you're getting the best deal. Minimize any temporary dings to your credit by applying for home loans within a brief period.

  • Save up anyway: Even if you can qualify for a program with a low down payment or none at all, it's still in your best interest to avoid a high loan-to-value ratio on your home. "If a program doesn’t offer discounted interest rate or private mortgage insurance, having a low down payment could also cause an even higher mortgage payment," says Hellige, "and more risk if the housing market goes down because you may end up owing more than the home is worth."

If you're having trouble navigating the mortgage process, consider taking a homebuying education course or working with a mortgage broker or loan officer who can help guide you through everything.

Article Sources
  1. "Highlights From the Profile of Home Buyers and Sellers," National Association of Realtors, https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers.
  2. "First-Time Homebuyers," HUD, https://archives.hud.gov/offices/hsg/sfh/ref/sfhp3-02.cfm.
  3. "When a 3%, 5%, or 10% conventional loan down payment is smarter," Better, Nov. 19, 2021, https://better.com/content/understanding-your-conventional-loan-down-payment/.
  4. "100% First-Time Homebuyer Loans," Mountain America Credit Union, https://www.macu.com/loans/home-loans/first-time-homebuyer.
  5. "Let FHA Loans Help You," HUD, https://www.hud.gov/buying/loans.
  6. "VA Home Loans," U.S. Department of Veterans Affairs, https://www.benefits.va.gov/homeloans/.
  7. "Single Family Housing Guaranteed Loan Program," U.S. Department of Agriculture Rural Development, https://www.rd.usda.gov/programs-services/single-family-housing-programs/single-family-housing-guaranteed-loan-program.
  8. "Down Payment and Closing Cost Assistance," Federal Deposit Insurance Corporation, https://www.fdic.gov/resources/bankers/affordable-mortgage-lending-center/guide/part-2-docs/down-payment.pdf.
  9. "Down Payment and Closing Cost Assistance," Fannie Mae, https://singlefamily.fanniemae.com/media/30131/display.
  10. Lisa Rinkus, "Mortgage Closing Costs 101: What You Need to Know Before You Buy," Citizens Bank, https://www.citizensbank.com/learning/mortgage-closing-costs.aspx.
  11. "Mortgagee Letter 10-29," HUD, Sept. 3, 2010, https://www.hud.gov/sites/documents/10-29ML.PDF.
  12. "Is a 640 Credit Score Good Enough for a VA Loan?" Home Promise, https://homepromise.com/low-credit-score-va-loans/is-a-640-credit-score-good-enough-for-a-va-loan/.
  13. "USDA Loan Credit Score Requirements," Neighbors Bank, https://www.neighborsbank.com/usda-loans/credit-requirements/.
  14. What are Fannie Mae and Freddie Mac?" Consumer Financial Protection Bureau (CFPB), Aug. 5, 2016, https://www.consumerfinance.gov/ask-cfpb/what-are-fannie-mae-and-freddie-mac-en-1959/.
  15. "HomeOne®," Freddie Mac, https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/home-one.
  16. "Home Possible®," Freddie Mac, https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/home-possible.
  17. "HomeReady Mortgage," Fannie Mae, https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/homeready-mortgage.
  18. "How Much Can I Borrow?" HomePath, https://www.homepath.fanniemae.com/cfl/homebuyers/how-much-can-i-borrow.
  19. "Loan Programs," California Housing Finance Agency, https://www.calhfa.ca.gov/homebuyer/programs/index.htm.
  20. "Our work," Habitat for Humanity, https://www.habitat.org/our-work.
  21. "My First Texas Home," The Texas Homebuyer Program, https://thetexashomebuyerprogram.com/products/my-first-texas-home.
  22. "What Credit Score Is Needed to Buy a House?" Capital One, https://www.capitalone.com/learn-grow/money-management/credit-score-needed-to-buy-a-house/.
  23. "Consumer Financial Protection Bureau Issues Two Final Rules to Promote Access to Responsible, Affordable Mortgage Credit," CFPB, Dec. 10, 2020, https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-issues-two-final-rules-promote-access-responsible-affordable-mortgage-credit/.
  24. "What is a debt-to-income ratio?" CFPB, June 8, 2022, https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-en-1791/.
  25. "B3-6-02, Debt-to-Income Ratios," Fannie Mae, May 4, 2022, https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-6-Liability-Assessment/1032992131/B3-6-02-Debt-to-Income-Ratios-02-05-2020.htm.

About the Authors

Ben Luthi

Ben Luthi

Ben has been writing about money since 2013. He's been on staff at NerdWallet as a credit card writer and for Student Loan Hero, where he covered student loans and other personal finance topics. Ben's work has appeared in U.S. News, The New York Times, Experian, FICO, Credit Karma, Bankrate and more

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