November 2nd, 2019 8:01 AM by Jackie A. Graves
First-time homebuyers are navigating one of the toughest real
estate markets in modern history. Inventory is especially tight in many areas
of the country as speculators buy these homes to flip for a quick profit, and
escalating costs are prompting builders to focus more on higher-end homes that
are more profitable for them.
than 40 percent of first-time homebuyers carrying student loan debt, and the
average first-time homebuyer age rising to an all-time high of 32 years old,
the real estate market can be a daunting place. Luckily, there are many
first-time homebuyers programs, including loans and grants, available.
the best national programs, grants and loans for first-time homebuyers that can
get you into a place of your own without a 20 percent down payment or sterling
credit. At the end of this story, you can find state first-time homebuyer
information for California, New York, Pennsylvania, Texas and Florida.
Summary: First-time homebuyer loans and programs
loan program: A loan insured by the Federal
Housing Administration. Good for those with low credit scores and little
money saved for a down payment.
loan program: A loan program 100 percent
guaranteed by the U.S. Department of Agriculture for lower-income
borrowers in eligible rural areas.
loan program: A loan backed by the U.S.
Department of Veteran Affairs that allows no down payment for military
personnel, veterans and their families.
Neighbor Next Door buyer aid program: A
HUD program that provides housing aid for law enforcement officers,
firefighters, emergency medical technicians and teachers.
Mae or Freddie Mac loan program: Conventional loans
backed by Fannie Mae or Freddie Mac require 3 percent down. Good for those
with strong credit.
ReadyBuyer Program: A program that provides 3
percent in closing cost assistance to first-time buyers. Must complete an
educational course and buy a foreclosed Fannie Mae property.
mortgage program: Backed by FHA or VA loan
programs and allows borrowers to combine the cost of energy-efficient
upgrades onto a primary loan upfront.
Section 203(k) loan program: Borrow the funds needed
to pay for home improvement projects and roll the costs into one FHA loan
with your primary mortgage.
first-time homebuyer programs and grants: Many
states and cities offer first-time buyer programs and grants for down
payment or closing cost assistance.
American Direct Loan: This VA-backed program
provides direct home loans to eligible Native American veterans to buy,
renovate or build homes on federal trust land.
1. FHA loan
Best for: Buyers with low credit and smaller down payments.
having enough money for a 20 percent down payment may deter you from buying a
home, but it shouldn’t. Insured by the Federal Housing Administration, FHA loans typically come with smaller
down payments and lower credit score requirements than most conventional loans.
First-time homebuyers can buy a home with a minimum credit score of 580 and as
little as 3.5 percent down or a credit score of 500 to 579 with at least 10
have one big catch called mortgage insurance. You’ll pay an upfront
premium and annual premiums, driving up your overall borrowing costs. Unlike homeowners insurance, this coverage doesn’t
protect you; it protects the lender in case you default on the loan.
more about finding the best FHA lender for you.
2. USDA loan
Best for: Borrowers with lower or moderate incomes purchasing a home
in a USDA-eligible rural area.
Department of Agriculture, or USDA, guarantees loans for some rural homes and
you can get 100 percent financing. This doesn’t mean you have to buy a farm or
shack up with livestock, but you do have to buy a home in a USDA-eligible area.
USDA loans also have income limits based
on where you live, meaning they’re geared toward folks who earn lower to
moderate incomes. Typically, you need a credit score of 640 or higher to qualify
for a streamlined USDA loan. If your score falls short, you’ll have to provide
extra documentation on your payment history to get a stamp of approval.
3. VA loan
Best for: Active-duty military members, veterans and their spouses.
military members (active duty and veterans) are eligible for loans backed by
the U.S. Department of Veterans Affairs, or VA. VA loans are a sweet deal for eligible
borrowers because they come with lower interest rates than most other loan
types and require no down payment. A funding fee is required on VA loans, but
that fee can be rolled into your loan costs and some service members may be
exempt from paying it altogether.
loan perks include no PMI or minimum credit score. If you struggle to make
payments on the mortgage, the VA can negotiate with the lender on your behalf
to take some stress from the equation.
4. Good Neighbor Next Door
Best for: Teachers, law enforcement, firefighters and emergency
The Good Neighbor Next Door program is
sponsored by the U.S. Department of Housing and Urban Development (HUD). It
provides housing aid for law enforcement officers, firefighters, emergency
medical technicians and pre-kindergarten through 12th-grade teachers.
this program, you can receive a discount of 50 percent on a home’s listed price
in regions known as “revitalization areas.” Using the program’s website, you can search for
properties available in your state. You must commit to living in the home for
at least 36 months.
5. Fannie Mae or Freddie
Best for: Borrowers with strong credit but minimal down payments.
government-sponsored enterprises, or GSEs, set borrowing guidelines for loans
they’re willing to buy from conventional lenders on the secondary mortgage
Both programs require a minimum down
payment of 3 percent. Homebuyers also need a minimum credit score of 620 (or
higher, depending on the lender) and a relatively unblemished financial and
credit history to qualify. Fannie Mae accepts a debt-to-income ratio as high as
50 percent in some cases. You’ll still pay for PMI because you’re putting less
than 20 percent down, but you can get it canceled once your loan-to-value ratio
drops below 80 percent.
6. Fannie Mae’s HomePath
Best for: First-time homebuyers who help for closing costs willing
to buy a foreclosed home.
Mae’s HomePath ReadyBuyer program is geared
toward first-time buyers interested in foreclosed homes that are owned by
Fannie Mae. After taking a required online homebuying education course,
eligible borrowers can receive up to 3 percent in closing cost assistance
toward the purchase of a HomePath property. The trick is finding a HomePath
property in your market, which might be a challenge since
foreclosures account for a smaller chunk of listings today.
Best for: Homebuyers who want to make their home more
energy-efficient but lack up-front cash for upgrades.
home more energy efficient is good for the environment, and good for your
wallet by lowering your utility bills. Making green upgrades can be costly, but
you can get an energy-efficient mortgage, or EEM loan, that’s insured through the FHA or VA
loan lets you tack the cost of energy-efficient upgrades (think new insulation,
a more efficient HVAC system or double-paned windows) onto your primary loan
upfront — all without a larger down payment.
8. FHA Section 203(k)
Best for: Homebuyers interested in purchasing a fixer-upper but who
don’t have a lot of cash to make major home improvements.
brave enough to take on a fixer-upper but don’t have the extra money to pay for
renovations, an FHA Section 203(k) loan is worth a look.
the FHA, the loan calculates the home’s value after improvements have been
made. You can then borrow the funds needed to pay for home improvement projects
and roll the costs into one loan with your primary loan amount. You’ll need a
down payment of at least 3.5 percent, and improvements must cost more than
9. State and local
first-time homebuyer programs and grants
Best for: First-time homebuyers who need closing cost or down
effort to attract new residents, many states and cities offer first-time
homebuyer grants and programs. The aid comes in the form of grants that don’t
have to be repaid or low-interest loans with deferred repayment to cover down
payment or closing costs. Some programs may have income limits, too. Before
buying a home, check your state’s housing authority website for more
real estate agent or local HUD-approved housing counseling agency to
learn more about first-time homebuyer loans in your area.
programs by state:
California first-time homebuyer grants and programs
Texas first-time homebuyer grants and programs
New York first-time homebuyer grants and programs
Florida first-time homebuyer grants and programs
Pennsylvania first-time homebuyer grants and
10. Native American Direct
Best for: Eligible Native American veterans wishing to buy a home on
federal trust land.
American Direct Loan provides financing to eligible Native
American veterans to buy, improve or build a home on federal trust land. This
loan differs from traditional VA loans in that the VA is the mortgage lender.
has no down payment or private insurance requirements, and closing costs are
low. And you’re not limited to only one property; you can get more than one
NADL. Not all states are eligible, though.
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