If you’ve reached the point in your life where you want to buy your first home, you are likely learning that doing so can be intimidating. Conventional mortgages typically require 20% of the purchase price upfront, along with a good credit score. Based on the average price for a new home ($406,400 — May 2017) that’s $81,280 (source). Below is a list of programs for first-time home buyers to consider.
You also have to look at interest rates, closing costs, fees, and more. If you’re head is spinning, don’t throw in the towel just yet. There are many programs for first-time home buyers out there that help in making home ownership more accessible.
The U.S. Department of Housing and Urban Development (HUD) distributes billions of dollars each year for this very purpose.
To help you understand what options are available, here are 13 programs for first-time home buyers you should know about.
Programs for first-time home buyers to lower your down payment amount
#1 Federal Housing Administration (FHA) loan program
FHA loans are administered by the Federal Housing Administration (a division of HUD) to first-time home buyers and offer down payments as low as 3.5%. Denise Supplee, co-founder of SparkRental.com says, “The FHA mortgage is a great place to start for first-time homebuyers. It has lower down-payment requirements and less stringent credit score constraints.”
The FHA mortgage is a great place to start for first-time homebuyers. It has lower down-payment requirements and less stringent credit score constraints.”
The loan is guaranteed by the FHA, which means the lender will get repaid by the agency if you don’t pay it back in full. This lowers the risk for lenders, which makes it easier for borrowers to get approved, even if their credit isn’t great. In addition, these loans typically come with competitive interest rates, low closing costs, and low fees.
So, what’s the catch? While it truly is an all-around good program that helps many people get into their first homes, you will need mortgage insurance.
To shop for lenders that provide FHA loans, click here and tick the box for FHA in the left-hand menu.
#2 Veteran’s Affairs (VA) loan program
Next up is the VA Loan program. The U.S. Department of Veteran Affairs put this program in place to help service members, veterans, and eligible surviving spouses become homeowners. It provides a home loan guaranty to lenders on behalf of qualified individuals.
As with the FHA loan program, the guaranty lowers the risk for lenders, which enables them to finance individuals despite a low credit score. Other advantages include no down payments, no requirements for monthly mortgage insurance, limitations on closing costs, low-interest rates, and no prepayment penalties.
#3 United States Department of Agriculture (USDA) loan program
The USDA has many rural housing programs, but the most common one for first-time home buyers is the Single Family Housing Guaranteed Loan Program. Through this program, low to moderate-income families can qualify for mortgage loans that are guaranteed by the USDA, again making it easier to get approved.
Benefits include no required down payment, affordable monthly mortgage insurance (MI) premiums, and low-interest rates. Learn more about USDA loans.
#4 HomePath Mortgage program by Fannie Mae
The HomePath mortgage program by Fannie Mae aims to make buying a home more affordable and accessible. It allows for down payments as low as 3% of the purchase price. Additionally, this program considers income from household members that are not the borrower and allows co-borrowers who do not reside in the home to be financed.
Although first-time home buyers can utilize this program, you don’t have to be one to qualify. There are two stipulations; buyers are required to complete an online homeownership course to qualify, and 25% mortgage insurance (MI) needed for loans with a 90%-97% loan-to-value ratio.
Review and compare lenders who offer the HomePath program here by ticking the box for HomePath in the left-hand menu.
#5 Fannie Mae Standard 97% LTV program
This option is another Fannie Mae program that also offers the 3% down payment. The differences between this and the HomePath program are that you do have to be a first-time home buyer for this one, you can get standard MI coverage instead of the more expensive 25% MI, and you don’t need to complete the education course.
Compare the two here.
#6 Home Possible program by Freddie Mac
The Home Possible program by Freddie Mac provides loans for low to moderate-income borrowers who buy homes in high-cost or underserved communities. Down payments available through this program are as low as 5% of the purchase price.
One key advantage of this program for first-time home buyers is that borrowers can qualify, even if they don’t have a credit score. Property options include one to four-unit properties, condos, planned unit developments, and manufactured homes (with some restrictions).
Home Possible Advantage is another version of this Freddie Mac program, but it’s for one-unit properties, condos, and planned unit development. Manufactured homes are not eligible. The down payment can be as low as 3% of the purchase price, and this is for borrowers who will occupy the property as their primary residence.
If interested in either of these programs for first-time home buyers, you will need to find a participating lender. Learn more here.
#7 NACA Program
NACA stands for the Neighborhood Assistance Corporation of America, which is a nonprofit, homeownership, and community advocacy organization. Cedric Stewart, a 13-year veteran Residential & Commercial Sales Consultant at Entourage RG at Keller Williams says, “It’s a 100% financing program (no down payment) that offers a loan product which could be described as a conventional loan hybrid by way of a non-profit.”
The program offers more than just 100% financing; it also has no closing costs, no fees, no requirement for perfect credit, and low-interest rates. It sounds good, and it is, but Stewart says, “The process by which to purchase a home with the loan is arduous, to say the least.”
Stewart explains, “Steps include attending a large information-based workshop, scheduling an initial intake appointment (usually months later), three months of payment shock (when you show you can save your proposed mortgage payment for three consecutive months), a follow-up appointment with an assigned counselor, and a final home buying workshop (at this workshop you’ll receive a letter that allows you to go shopping for a home).”
While this program is certainly helpful, it won’t be good if you want to buy a home with any sense of urgency. Learn more about the steps to homwownership program. If you do decide to utilize it, Stewart advises, “Working exclusively with Realtors who know the program is one of the keys to success that are recommended to prospective buyers when they attend the workshops.”
He adds, “A Realtor seasoned in dealing with the program can explain the process to the listing agent that’s afraid to accept the offer because they’ve never heard of the program. They can also manage both sides of the process and handle all of the inevitable challenges that arise.”
Programs for first-time home buyers for energy efficiency improvements
#8 FHA Energy Efficient Mortgage (EEM) program
The FHA also offers this program, which can help if you want to make energy efficient improvements to your new home. It allows you to finance cost-effective improvements as part of your mortgage. The increase in energy efficiency can help you save on your costs and increase the resale value of your home.
To qualify, you will need to get a home energy assessment. It will serve to identify the improvements that can be made, estimate the savings from each improvement, and calculate the cost to make each improvement. Improvements that save more than they cost are deemed cost-effective by mortgage lenders.
With this program, you can exceed the loan limit you would otherwise be approved for. Therefore, you don’t need to re-qualify, there is no additional down payment required, and the improvements are to be made after closing, so they don’t impact the appraisal.
Compare lenders here by ticking the box for FHA in the left-hand menu.
Programs for first-time home buyers for home improvements
#9 FHA 203(k) loan program
If you want to make improvements to a home you are buying, the FHA 203(k) loan program can help. It allows you to borrow money to cover the cost of the house along with the cost of the improvements, all in one loan. These are guaranteed and have the low down payment benefits of the regular FHA loan.
The money for improvements can also be used to cover the cost of rent or your mortgage for six months while construction is going on. Note that the funds will be put into an escrow account and released as the project is done. Also, the work is to be completed within six months.
Browse FHA 203(k) lenders here by ticking the box for 203(k) in the left-hand menu.
Programs for first-time home buyers for financial assistance
#10 Good Neighbor Next Door program
This is a program for eligible law enforcement officers, teachers, emergency medical technicians, or firefighters. The U.S. Department of Housing and Urban Development (HUD) offers a 50% discount on the list price of eligible single-family homes in revitalization areas.
This means that, if a house is listed for $200,000 and you qualify, you can get it for $100,000. You can check the listings for your state here.
Properties are offered exclusively through the program for a short seven days, so the homes available change weekly. To get the discount, you have to live in the house as your sole residence for 36 months, after which you can sell it for a profit if you wish.
The Good Neighbor Next Door program can be used in combination with other loan programs like FHA, VA, and USDA. Learn more here.
#11 HOME Investments Partnership program
This is another program put in place by HUD, and it provides formula grants to state governments and local organizations within communities (such as non-profit organizations). It’s the largest Federal block grant given to state and local governments to help low-income individuals find affordable housing.
The funds can be given to eligible beneficiaries in the form of a grant, a loan guaranty, other types of credit enhancement, a direct loan, rental assistance, or a security deposit. If you qualify, this program may be able to help you with your home purchase.
Learn more by finding an organization in your local area and contacting them.
#12 Down Payment Assistance (DPA) program by the National Homebuyers Fund (NHF)
This program helps home buyers who are under the set income limits pay for the down payment on a new house. If you qualify and get approved with a participating lender, they will award the DPA grant, which pays for the down payment and/or closing costs (up to 5% of the total loan cost) and never has to be repaid. Ask your lender about this program.
#13 Home Path Ready Buyer program by Fannie Mae
Lastly, in addition to the HomePath Mortgage by Fannie Mae, you also have the potential to receive the 3% of the purchase price required for your down payment through the Home Path Ready Buyer program. You must meet certain eligibility requirements and complete the online course required for the Home Ready Mortgage. If you are interested, let your real estate agent know, and they will need to submit the course completion certificate with your offer on a Home Path property.
In addition to the programs listed above, you will want to see what programs are available from your city and state governments and local organizations. Click here to find local programs offered in your area.
Get into the home of your dreams
Thanks to programs like these, home ownership can be a reality for more individuals and families. Even if you have less-than-great credit, no credit, no down payment, or a combination of all these things, you still have options.
Finding the right program is an essential first step, and the next step is finding the right lender. There are a variety of lending companies that offer these programs, so you’ll want to compare their offers to find the best deal.
We can help you with that part. Simply head over to our home loans review page and compare a variety of companies apples to apples.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.