Buying your first house? You may be able to get some assistance.
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Buying your first house or condominium has long been a monumental step, but steadily increasing home prices have made affording a home even more challenging for many first-time homebuyers. High costs, fluctuating mortgage rates, and a shortage of homes for sale have left aspiring homeowners feeling overwhelmed.
If youâre among them, take heart in knowing that help exists. First-time homebuyer and other loan programs can help you achieve your dream of homeownership sooner than you might think.
Key Points
- Government loan programs reduce risk by guaranteeing mortgages, encouraging lenders to provide loans to borrowers with smaller down payments.
- Fannie Mae and Freddie Mac offer low down payment programs to first-time homebuyers who meet their criteria.
- State governments and nonprofits have first-time homebuyer programs for eligible participants.
Government first-time homebuyer programs
Government loan programs can make it easier to purchase a house, even if youâve never done it before. Each program has its own requirements, but a good mortgage broker can help you compare options.
FHA loan. The Federal Housing Administration offers a loan that allows you to put as little as 3.5% down when you have a credit score of at least 580. Even with a lower credit score, an FHA loan can open the door to homeownership if youâre able to put down 10%. The home price must meet conforming limits for your county to qualify. You must also live on the property (which can have up to four units) as a primary residence for at least a year.
The FHA also offers mortgage help with other programs, including:
- Energy Efficient Mortgage Program. This helps with the cost of buying a residence and paying for energy-efficient upgrades by including them in your loan.
- 203(k) Rehabilitation Mortgage Insurance Program. For homes that are at least a year old and need upgrades and repairs, this program provides financing to assist with the purchase and rehabilitation of a house, townhouse, or condo.
- Good Neighbor Next Door. Buy a specific listed property at a discount and live there for at least three years. To qualify, you must be a firefighter, law enforcement officer, emergency medical technician (EMT), or teacher.
USDA loan. The U.S. Department of Agriculture offers a loan program aimed at getting more buyers to purchase homes in rural areas. You can qualify for a zero-down loan if you meet certain income requirements. You have to live in certain areas, but if youâre willing to make that move, you could get help buying a house without worrying about a down payment.
VA loan. Eligible service members and veterans (and sometimes their spouses) can qualify for a zero-down home loan from the Department of Veterans Affairs. A certificate of eligibility and a funding fee, which can be rolled into the loan, are required. Working with a lender experienced with VA loans can help expedite the application process.
Native American loan. Members of federally recognized tribes can access Section 184 funding to help buy a home in approved areas. Applicants must work with partner lenders and buy properties with four or fewer units. Like other government loan programs, the home price must be within your countyâs conforming limits.
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Conventional first-time homebuyer loan programs
Fannie Mae and Freddie Mac, the two government-sponsored enterprises under the conservatorship of the Federal Housing Finance Agency (FHFA), also offer programs that help borrowers qualify for mortgages. Both have credit requirements that are more stringent than those of government home loan programs, but you can usually buy with as little as 3% down:
- HomeReady. Fannie Maeâs program comes with a $2,500 credit for low-income borrowers to help with closing costs or a down payment.
- Home Possible. Your income canât exceed 80% of your areaâs median income to qualify for this Freddie Mac program, but it features flexible down payment options, such as gifts. Also, co-borrowers arenât required to live in the home.
These programs are offered through participating lenders, including banks, credit unions, and mortgage companies. Fannie and Freddie then buy the loans.
First-time homebuyer grants
Some organizations offer first-time homebuyer grants designed to help you pay closing costs, buy mortgage points to reduce your interest rate, or help with a down payment. Review the programsâ requirements to understand how the funds can be used.
Down payment assistance
Down payment assistance programs can help you find the funds to purchase a home, but itâs important to know whether youâre getting a grant or a loan. A grant is money you donât have to pay back, whereas some state agencies offer down payment assistance financing, which is essentially a second mortgage that must be repaid.
Some programs include:
- National Homebuyers Fund. Not limited to first-time homebuyers, this organization sponsors grants of up to 5% of the purchase price to help with a down payment and closing costs.
- Americaâs Home Grant. This Bank of America program provides a credit of up to $7,500 to help you offset closing costs. Its Down Payment Grant offers up to $10,000 in down payment assistance.
- Chase Homebuyer Grant. This grant can be used along with an FHA or VA loan through JPMorgan Chase, in addition to a conventional loan or other Chase product, and can help with fees, buying down your interest rate, or a down payment.
State first-time homebuyer grants. Check with your state housing agency to find out whether it offers first-time homebuyer grants. Even if they donât provide grants, they might have other programs, such as down payment assistance loans, to help you develop the capital you need to buy a home. Youâll have to pay these loans back over time, along with your primary mortgage.
Habitat for Humanity. Although itâs not strictly a first-time homebuyer program or grant, the nonprofit organization Habitat for Humanity offers a path to homeownership if you meet income requirements. Applicants go through a financial review and are usually required to provide sweat equity to help build the home or volunteer in another way. The organization also makes homeownership affordable by offering loans with payments capped based on your income. In many cases, such loans are interest free.
The path to owning your own home can be challenging for many first-time homebuyers. But various government and private-sector programs exist to help make homeownership more accessible.
Government-sponsored programs from the Federal Housing Administration, Department of Agriculture, and Department of Veterans Affairs offer reduced down payments and benefits to specific groups of buyers, such as those looking to buy in rural areas and former military members. Fannie Mae and Freddie Mac offer flexible down payment programs to buyers within certain income limits, and many states and nonprofit organizations supply grants to help lower the costs of purchasing a home.
Assistance can come in the form of grants, loans, or both. Review the requirements of these programs to find the right one for you and achieve your goal of becoming a homeownerâperhaps more easily than you thought.
Examples used in this article are for educational purposes only and are not an endorsement of any of the companies, agencies, or programs mentioned.
This article was most recently revised and updated by Miranda MarquitThis article was most recently revised and updated by David Schepp
