Buying your first home can be challenging, especially when it comes to getting approved for a mortgage and coming up with the down payment. Thankfully, there are plenty of first-time home buyer government programs that can make things easier.
Dig deeper and find out about various loan options, state-run mortgage programs, down payment assistance, and other resources available to eligible buyers.
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First-time buyers can face plenty of hurdles on the road to homeownership — whether it’s saving for a down payment and closing costs, qualifying for a mortgage loan, or simply navigating the home buying process. Luckily, there are government programs both at the federal and state level that can help.
There are several government loan options that are worth exploring if you need a little extra help qualifying for a mortgage:
FHA loans can help if you can’t afford a traditional 20% down payment or have a less-than-perfect credit score.
“You can put down as little as 3.5% at closing with an FHA loan,” says Mandie Anderson, branch manager with South Carolina-based Silverton Mortgage. “These loans have more flexible underwriting standards and are insured by the Federal Housing Administration and issued by an FHA-approved lender.”
The downside is that, with an FHA loan, you’ll have to pay an upfront mortgage insurance premium along with annual premiums that are paid monthly. This mortgage insurance will usually need to be paid until you pay off your mortgage or refinance into a different loan type.
An FHA loan isn’t the only low-down-payment loan option available. Fannie Mae and Freddie Mac — two “government-sponsored enterprises” — each offer a mortgage program with just 3% down. Fannie Mae’s low-down-payment option is called HomeReady and Freddie Mac’s is called Home Possible.
Though these aren’t technically government mortgage loans, they offer many similar benefits, such as flexible credit score and income guidelines. They also have reduced private mortgage insurance (PMI) premiums, which leads to lower monthly mortgage payments.
“I typically recommend investigating this route,” says Jon Meyer, The Mortgage Reports loan expert and licensed MLO. “Unlike FHA loans, these two first-time home buyer government programs do not require refinancing to remove mortgage insurance.”
These programs are definitely worth exploring if you’re considering an FHA mortgage.
A VA loan is arguably the most generous government-backed loan available, but you have to be an active duty service member, veteran, surviving spouse, or other eligible applicant to qualify.
“What makes this loan different from many others is it requires no down payment and no monthly mortgage insurance,” Anderson notes. She explains that “VA loans are provided by private lenders, with the Department of Veterans Affairs guaranteeing a portion of the loan. This makes it possible for the lender to offer more favorable terms and interest rates, with no minimum credit score required.”
You will have to pay a VA funding fee, which is often between 2.3% and 3.6% of the loan amount. Many home buyers roll the VA funding fee into their mortgage to avoid paying it upfront.
Backed by the U.S. Department of Housing and Urban Development, the USDA loan is ideal for borrowers with low incomes buying property in rural areas.
“This loan program is available to low-to-moderate income buyers in less-populated suburbs of some major cities,” Gravelle explains. “As with a VA loan, a USDA loan allows borrowers to finance up to 100%, with zero money down.”
To qualify, your household income must meet certain guidelines and the home to be purchased must be in an eligible rural area, as defined by the USDA. However, an estimated 97% of the U.S. landmass qualifies as rural. Use the USDA’s online tool to see if your home is eligible.
Many states have special loan programs run by their housing finance agency or a similar body. These can offer unique benefits like low interest rates and down payment assistance (DPA). Check out these links for more information and to locate a state-run mortgage or assistance program near you:
“There are many publicly and privately funded programs available to help first-time buyers, such as state bond loans and DPA programs,” continues Gravelle. “These programs for home buyers offer funds administered by cities, counties, housing finance agencies, nonprofits, lenders, and other groups; in some high-cost areas, even employers offer them.”
Because these programs are typically offered by local governments, the best way to learn more about them is to speak with a loan officer or local real estate agent or search online for “first-time home buyer programs” or “down payment assistance programs” in your city or county.
“Keep in mind that not everyone qualifies for these state-run programs,” says Anderson. “Factors such as income, credit score, profession, and even the location you’re looking to purchase in can determine your eligibility.”
In addition, government first-time home buyer grants often require borrowers to complete some form of homebuyer education course.
Down payment assistance programs (DPAs) help first-time buyers by covering all or part of their down payment requirements. There are thousands of DPA programs available nationwide and locally. The aid they offer comes in several different forms, including grants, loans, and credits.
“When researching financial assistance programs, carefully review the program requirements to ensure that you qualify. Also, make sure you can find an approved lender,” advises Anderson.
Many first-time home buyers are so focused on the down payment and purchase price that they overlook the steep expense of closing costs, which are generally 2% to 5% of the loan amount. This is when closing cost assistance can provide much-needed relief.
Housing Finance Authority (HFA). Similarly, your real estate agent or Realtor may be able to point you in the right direction.
If your state or local government is helping you purchase a home, they may also offer you access to a mortgage credit certificate (MCC). This is a credit that can reduce the amount of federal income tax you pay, making it possible for you to save more funds for a down payment and other costs associated with a home purchase.
First-Time Homebuyer Act will provide a $15,000 refundable tax credit to help more renters become homeowners. While it’s not yet passed into law at the time of this writing, the program would give eligible first-time buyers up to 10% of the home’s purchase price:
“Keep in mind that a tax credit is not received until you file a tax return, so be sure to consult with a tax advisor for your specific situation,” adds Anderson.
This information is provided for educational purposes only. Always consult with a tax professional about your legal tax obligations.
First-time home buyers often find it helpful to take a home buyer education course before buying. If you use a government-run mortgage or down payment assistance program, home buyer education is often required.
counseling through HUD for free. “There are HUD-approved housing counseling agencies in every state that can help borrowers navigate the process for no charge,” adds Anderson.
For many, the biggest hurdle when trying to purchase their first home is coming up with the upfront costs of a down payment. While the amount needed to put down varies depending on the type of loan, it can still be a roadblock on the journey to homeownership.
“The good news is that there are numerous government loan programs and down payment assistance options designed especially for those who need a little extra help with financing. These programs can be a solution in particular for those who can afford a monthly mortgage payment but may not have a large sum of money on hand for the down payment,” Anderson explains.
Government-backed loans are a great option for anyone who wants to put less money down or has a lower credit score, explains Jeff Gravelle, chief production officer at Newrez, a national mortgage lending and servicing organization.
“Since they are insured by the government, these loans are less risky to lenders and, therefore, allow lenders to offer lower interest rates. As a result, the monthly mortgage payments are often more affordable,” he adds.
If you’re getting serious about buying a home, it’s worth connecting with a mortgage lender. Your loan officer can help you explore your options, look into assistance programs, and gauge your eligibility. Not only will this give you some direction, but getting preapproved is also often required to make an offer on a home.
When you’re ready, your first step should be to reach out and talk to a mortgage lender about your options.