Coming up with a large down payment is the biggest challenge for potential homebuyers.
Fortunately, there are several programs for first-time homebuyers that can make buying a home a reality.
In this article, we will go over the top 10 first-time homebuyer loan programs.
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10 First-Time Homebuyer Loan Programs | |
FHA Loans | 3.5% down with a 580 minimum credit score. |
USDA Loans | No down payment needed, 620+ credit scores, income limits, must be in USDA eligible location. |
VA Loans | No down payment or mortgage insurance |
FHA 203k Loans | Rehab loan for fixer-upper. 3.5% down 620 minimum credit score. |
Conventional 97 | Minimum 680 credit score, 3% down. |
HomeReady Loan | 620 credit score, 3.5% down, income limits |
Home Possible Loan | 620 credit score, 3.5% down, income limits |
Local HUD Programs | Buy foreclosed properties on the HUD Homestore website using local HUD programs. |
Good Neighbor Next Door | Teachers, law enforcement officers, or EMTs get 50% off HUD home with $100 down. |
HUD Dollar Home Program | HUD sells homes to counties for $1 to offer as low income housing. |
1. FHA Loans
FHA loans help more first-time homebuyers become homeowners than any other type of mortgage program. Borrowers with a 500 credit score can qualify with a 10% down payment. Borrowers with a 580 credit score need just a 3.5% down payment.
For a $200,000 house, that means you will just need $7,000 for your down payment.
Your down payment can be a gift from a family member or friend. This means you can get into your new home with little or no money upfront.
2020 FHA Loan Requirements |
• 580 credit score with 3.5% down |
• 500-579 score with 10% down |
• Maximum 50% debt-to-income ratio |
• Two years of stable employment and income history |
• For primary residence only |
• 24 month waiting period after a foreclosure or bankruptcy |
• 1% of student loan debt added to DTI ratio |
2. USDA Loans
The USDA home loan program from the U.S. Department of Agriculture is for low-to-moderate-income home buyers in rural areas of the country.
While it may sound like only tiny towns and rural areas will be eligible. However, almost 97% of the country is in an eligible USDA location. USDA mortgage loans are perfect for first-time homebuyers because there is NO down payment required.
2020 USDA Loan Requirements |
• 640 minimum credit score |
• Total household income less than 115% of the average in your area |
• Maximum 43%-50% debt-to-income ratio |
• Two years of stable employment history |
• Occupy the property as your primary residence |
• Prove of income (Two years of tax returns and W2's) |
• Must be in an eligible rural area |
• Work with an approved USDA lender |
3. VA Loans
The Veterans Administration has a home buyer program for active and retired Vets. VA loans require NO down payment, reducing the upfront costs associated with getting a mortgage.
VA mortgage loans are the cheapest mortgage available because no mortgage insurance is required. This makes VA loans perfect for any first-time homebuyer who is eligible.
VA Loan Service Requirements |
• Served 90 consecutive days of active service during wartime, OR |
• Served 181 days of active service during peacetime, OR |
• 6 years of service in the National Guard or Reserves, OR |
• Are a spouse of a service member who died in the line of duty or service-related disability. |
4. 203k Rehab Loans
If you’re in the market to purchase a fixer-upper home, then a 203k loan may be a perfect fit for you. These rehab loans are an extension of the FHA loan program.
Instead of getting two separate loans to purchase a home and getting cash for upgrades or repairs a 203k loan gives you money to purchase a home and the cash to renovate it with a single loan.
FHA 203k loans’ requirements are similar to a standard FHA loan, except the credit score requirement is 640.
2020 FHA 203k Loan Requirements |
• Minimum 620 credit score |
• 24 month waiting period after a bankruptcy or foreclosure |
• Maximum 43%-50% debt-to-income ratio |
• For primary residence only |
5. Conventional 97 Loan
Fannie Mae and Freddie Mac are government-sponsored entities that provide a secondary market in buying mortgages.
Fannie and Freddie created the 97% loan-to-value (LTV) mortgage loan program that helps first-time buyers achieve the dream of homeownership.
Conventional 97 mortgage loans allow borrowers to put a low down payment of just 3%. The down payment can be a gift from a friend or family member.
6. HomeReady Loan Program
The HomeReady loan program is targeted at first-time home buyers. A low down payment of just 3% is required, which is even less than FHA loans.
This program is exclusively for first-time homebuyers who plan to occupy the property as their primary residence. You will also need to have a real estate agent to purchase a home through the program.
7. Home Possible Loan Program
The Home Possible loan program by Freddie Mac is similar to the HomeReady program. It’s designed for low-to-median income first-time homebuyers requiring just a 3% down payment.
Home Possible Loan Benefits |
• 3% down payment |
• Low interest rates |
• Alternate income sources excepted |
• Fixed mortgage payments |
• Low mortgage insurance rates |
• PMI can be canceled at 80% LTV |
HomeReady / Home Possible vs. FHA
FHA Loan | HomeReady / Home Possible Loan | |
Down Payment | 580 with 3.5% down500 with 10% down | 3% |
Minimum Credit Score | 500-580 | 620 |
Income Limits | No income limit | 80% of area median incomeVaries by county |
Mortgage Insurance | Up-front MIP paymentMonthly MIP payments• >10% down MIP cancels in 11 yrs• <10% down MIP required for the life of the loan | Monthly PMI payments• PMI canceled when LTV ratio reaches 78% |
Income Sources | Only applicant's income can be used | Can use income from parents, renters, or anyone else living in the home |
Max loan-to-value | 96.5% | 97% LTV, 105% TLTV with Affordable Seconds, and 97% HTLTV for 1-unit properties |
Homebuyer Education | Not required | 4-6 hours of homeownership education coursesCost: $75 |
Debt-to-income | 43% - 50% | 50% |
8. Local HUD Programs
HUD has local programs in all 50 states that assist homebuyers, including down payment and closing costs assistance.
9. Good Neighbor Next Door Program
The Good Neighbor Next Door program provides homes for 50% off for teachers, police officers, and EMT’s.
A $100 down payment is all that is required for this great program. Search for available properties in your area on the HUD Homestore website.
Good Neighbor Next Door Eligibility Requirements |
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10. HUD Dollar Home Program
HUD (Department of Housing and Urban Development) sells foreclosed FHA homes that have been on the HUD website for more than six months.
Local Governments can offer homes to low-income families to help revitalize a community. You can view these eligible HUD homes on the HUD website.
Click here for more information on the dollar home program with HUD.
Budget for all Homeownership Costs
Being a homeowner comes with more costs than just principal and interest payments. Property taxes, homeowners insurance, mortgage insurance premiums, and HOA fees may also be required. All of which, minus HOA fees, are usually included in your monthly mortgage payment.
Know what you can afford so you don’t waste your time looking at homes over your budget.
How much home can you afford calculator
Ask your lender
Not every mortgage lender will approve first-time homebuyers who are using a grant or some assistance. Make sure you ask your loan officer if they can use the type of grant you have.
Other lenders may be able to help you find down payment assistance or grants for first-time homebuyers that will help you achieve your dream of homeownership.
