A Guide To First-Time Home Buyer Programs, Loans And Grants

If you're a first-time home buyer, there are several programs that exist on the federal and state levels to help you afford a home. Even if you’re not a first-time buyer, you may still be able to qualify for some of these programs if you haven’t bought a home in a while.

To take advantage of these programs, it’s important to understand the different types that are available and how they’re designed to help.

Who Qualifies For First-Time Home Buyer Loan Programs?

Whether you qualify for a first-time home buyer program or loan depends on the specific eligibility requirements established by the mortgage lender, agency, employer or other financial institution. According to the U.S. Department of Housing and Urban Development, a first-time home buyer is someone who has not owned a principal residence in the previous 3 years, though others might fall under additional criteria.

In many cases, you’ll have to be within certain income limits to qualify for the loans and programs that provide assistance to moderate- to low-income borrowers.

Check your credit score, debt-to-income ratio (DTI) and other qualifying factors before applying for a specific first-time home buyer program, grant or mortgage.

How To Find A First-Time Home Buyer Program In Your State

Each state has its own resources aimed at helping first-time home buyers, but many people are unaware that these programs exist or know where to find them. Here are some ways you can find applicable programs in your state:

• Check the HUD’s website: The HUD has a directory of home buying resources for all 50 states. When you click on your state, you can find links to home buying programs or your state’s housing authority website.
• Visit your state’s housing authority website: Most states have a housing authority website that provides information about affordable housing programs in the area.
• Check your local government’s website: Check your local government’s website to see if your city or county offers any first-time home buyer programs.
• Ask your lender: Once you’ve found a lender you want to work with, ask them if they can recommend any programs offering down payment assistance or first-time home buyer grants.
• Reach out to nonprofits: Spend some time looking for nonprofits in your area that specialize in helping borrowers find affordable housing. These groups often offer educational resources and access to first-time home buyer programs.

Types Of First-Time Home Buyer Programs

First-time home buyer costs can seem overwhelming. Affording the down payment and closing costs are among the biggest barriers to becoming a homeowner. Luckily, there are several loan programs and grants that can assist you, including charitable and government-sponsored programs. Local and federal tax credits can also lessen these costs, and educational programs can offer help at every step.

These programs come with different requirements, which can impact everything from the interest rates offered to the down payment required.

Government-Backed Home Loans

A government loan, or a mortgage loan backed by the federal government, can help qualified first-time home buyers purchase a house with a reduced down payment, and in some instances no down payment at all.

There are government programs on both the federal and state level. We’ll cover these types of loans in more detail later on in the article.

Down Payment Assistance

The down payment is one of the most expensive aspects of purchasing a home. A down payment is required for most types of mortgage loans. Fortunately, many participating lenders accept down payment assistance, which can help you cover the upfront costs of a down payment.

Down payment assistance programs are typically grants or low- to no-interest loans, and many are exclusive to first-time home buyers. The specific assistance programs you qualify for can impact how you can use your funds and whether you’ll need to pay them back.

Tax Deductions

You can save money on your taxes through various tax deductions, which can also help reduce the costs of homeownership for first-time home buyers. Federal and state deductions can lower your taxable household income.

For example, you can deduct the cost of mortgage interest paid on a primary residence and one second home from your federal taxes on the first $750,000 of your mortgage loan ($375,000 if married filing separately).

Additional deductions and credits, like mortgage credit certificates, may also be available through your state or local government.

Closing Cost Assistance

Like down payment assistance, there are government-sponsored and private programs that can help you pay closing costs. Closing costs are additional fees you pay at the end of the mortgage process. Closing costs are typically around 3% – 6% of the total loan amount. Like down payment assistance, closing cost assistance can come through a grant or loan.

Home Buyer Education Programs

You can take advantage of online educational programs and resources if you aren’t sure how to start your home search. A good first-time home buying class can be free or low-priced, and can teach you about your home loan options, the buying process and how to apply for a mortgage. Browse real estate courses online and look for ones aimed at first-time home buyers. It’s worth noting that some educational programs may require specific courses.

Not sure where to start? Check out these tips for first-time home buyers.

Federal First-Time Home Buyer Programs

You can take advantage of federal, state and local government programs when you buy a home. Federal programs are open to anyone who’s a citizen or legal resident of the U.S. Though not everyone qualifies for every program, you don’t need to live in a specific state to get federal assistance. Here are some of the most popular federal programs for first-time home buyers:

• FHA loans: FHA loans are backed by the Federal Housing Administration (FHA). Eligible home buyers who have a credit score of at least 580 can take out an FHA home loan with a 3.5% down payment.
• VA loans: VA loans provide affordable housing options to qualified veterans, service members and surviving spouses courtesy of the Department of Veterans Affairs (VA). VA loans don’t require a down payment and have flexible credit score requirements for borrowers.
• USDA loans: U.S. Department of Agriculture (USDA) loans are designed for eligible home buyers in certain rural areas of the U.S. Some USDA loans don’t require a down payment on the home purchase, and lenders are usually looking for a credit score between 620 and 640. At this time, Rocket Mortgage^® does not offer USDA loans.
• Conventional 97 mortgage loan: A conventional 97 loan lets eligible home buyers borrow up to 97% of the home’s value with a down payment as low as 3%. To qualify, at least one borrower must be a first-time home buyer with a minimum credit score of 620.
• Good Neighbor Next Door: Are you a teacher, emergency medical technician, firefighter or law enforcement officer? You can take advantage of the Good Neighbor Next Door program sponsored by the U.S. Department of Housing and Urban Development (HUD). The program offers a generous 50% off select HUD properties.
• HomePath^® Ready Buyer™ Program: Government-sponsored mortgage financing enterprise Fannie Mae offers first-time home buyers the chance to buy a foreclosed property for as little as 3% down with their HomePath program. You can even apply for up to 3% of your closing costs back through the program as well.
• Section 184 Indian Housing Loan Guarantee Program: The Section 184 program sponsored by The Department of Housing and Urban Development, encourages lenders to serve Native communities. Borrowers can finance their home with a low down payment and expect flexible underwriting.

Charitable Or Nonprofit First-Time Home Buyer Programs

You might qualify for charitable or nonprofit assistance if you have low to moderate income. Charities and nonprofits are nongovernment organizations that can offer you educational and financial resources when you buy a home.

Nonprofits usually have income limits and requirements that dictate the type of home buyer who can receive assistance.

Habitat For Humanity

One of the most well-known housing nonprofits is Habitat for Humanity, an international organization that offers “simple, decent and affordable” housing for low-income families. Volunteers build homes for those in need, and Habitat for Humanity makes no profit on the home after you close. This makes their homes much more affordable than local options.

Neighborhood Assistance Corporation Of America (NACA)

The Neighborhood Assistance Corporation of America (NACA) is another nationwide nonprofit that can help you buy a home. NACA offers “financially unstable” households mortgage counseling and education. NACA’s team members also help low-income families find lenders to work with them.

NACA loans don’t require a down payment, closing costs or a minimum credit score to qualify.

Like government programs, many charities and nonprofits are region-specific. HUD keeps a running list of approved nonprofits available in every state and county. You can learn more about local housing programs available to you by visiting HUD’s website.

Additional First-Time Home Buyer Programs

Here are some additional resources for first-time home buyers that don’t fit into the categories we’ve covered so far.

State And Local First-Time Home Buyer Programs

Most government home buying assistance comes through state and local programs. Individual programs vary depending on your location. You can view a complete list of state-specific buying resources on the HUD program page.

Employer-Sponsored First-Time Home Buyer Programs

Some employers have housing incentives in place to help employees cover down payments and closing costs. Your employer may offer a grant or loan that’s forgivable over time, and your labor union might also offer closing cost assistance.

Any available employer-sponsored programs depend on your specific employer. Not every employer offers housing or closing assistance, and employer partnership programs are usually joint efforts between state governments and employers.

Set up a meeting with your manager or HR representative and ask if your workplace offers any kind of down payment or closing cost assistance.

First-Time Home Buyer Grants And Loans For Students

If you’re looking into buying property as a student, keep in mind that your school loans may make getting a mortgage a bit more difficult. However, the same first-time buyer programs should apply if you’re looking to buy a house.

What’s The Best Loan For First-Time Home Buyers?

There is no single “best” loan for a first-time home buyer, and the right option will vary depending on your needs. Let’s look at some criteria you can use to evaluate potential loans.

Your financial situation: The type of loan you apply for will depend on your financial situation and the type of credit score you have. For example, FHA loans are a good option for borrowers with bad credit since they come with flexible credit requirements. If you have a credit score above 580, you can qualify with a 3.5% down payment. If your credit score is below 580, you’ll need a 10% down payment to qualify.

What kind of property you’re buying: Different loans also work better for different types of homes. If you’re moving to a rural area, USDA loans often come with the best loan terms. If you’re buying a single-home home and have a good credit score, you may want to apply for a conventional loan. And FHA loans offer financing for a duplex, triplex and fourplex.

Your down payment capacity: Your loan options will also depend on how much money you have to put toward a down payment. If you can make the full 20% down payment, you’ll probably find the best rates and terms with a conventional loan. If you don’t have any money to put toward a down payment, VA loans and USDA loans are your best bet. These loans don’t have any down payment requirements and don’t require PMI.

Assistance programs you qualify for: Finally, you can significantly reduce the burden of homeownership by taking advantage of first-time home buyer assistance programs. Here are some of the best options to look for:

• Grants: A grant is financial assistance that doesn’t have to be repaid, so you should take advantage of these options first. There are various federal programs and nonprofits offering grants to eligible first-time home buyers.  
• Down payment assistance: Down payment assistance programs help you cover the upfront costs associated with buying your first home. For example, the National Homebuyers Fund will cover your down payment or closing costs for up to 5% of the total loan amount. 
• State-specific programs: Most states offer some kind of assistance for first-time home buyers like down payment assistance or loans with competitive interest rates.
• Career-specific programs: You may qualify for certain programs based on your profession. For example, the Good Neighbor Next Door program offers a 50% discount on HUD-owned listings for teachers and other education professionals.

The Bottom Line: First-Time Home Buyers Have Financial Help

First-time home buyers have access to many grants, loans and financial help that can make buying a home easier. First-time buying assistance can include help with down payments and closing costs, tax credits or education. You might be able to get help from your local, state or federal government if you meet certain income standards.

Charities, nonprofits and employer programs are also available to eligible buyers. These programs vary by state, but you can easily find programs you qualify for through HUD’s website.

Ready to explore your options? Start your mortgage application today.