Finding the Best First-Time Homebuyer Programs

For those who’ve never owned a home before, buying one can feel like an impossible dream—but it doesn’t have to be. Several first-time homebuyer programs are designed to help broaden the pool of qualified buyers through government-backed loans and mortgages funded by public and private banks. These programs are for people who have not owned and occupied a home as their primary residence for the past three years, allowing them to take advantage of reduced interest rates, a more forgiving approval process, and a 5 percent or less down payment.
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Of course, with any loan, stipulations will always be attached. So before starting any loan process, do your research to determine what you qualify for, such as ones with low or no down payments, down payment assistance, or forgivable mortgages. Check out this list of the most common to help you begin.

​Low or no down payment programs
One of the biggest struggles that first-time homebuyers face is acquiring enough funds for a down payment. Several government-funded programs are making it possible for these buyers to be able to purchase a home.

Conventional 97

Backed by Fannie Mae and Freddie Mac, this program enables you to only pay 3 percent for a down payment and mortgage the remaining 97 percent of the home’s purchase price. They can be used to purchase a single unit—single-family house, condo, or townhome. There is no income limit, credit scores can vary, and interest rates are usually reasonable.

Federal Housing Authority (FHA)-endorsed loans

The FHA does not fund loans but instead insures them for lenders. FHA loans are available in all fifty states for all income types, and qualified buyers can pay as little as 3.5 percent for their down payment. Buyers with low or no credit also qualify for this loan, but interest rates tend to be higher.

United States Department of Agriculture (USDA) loans

Backed by the US Department of Agriculture, this program is geared toward rural areas. These loans are for modest homes and provide 100 percent financing with no down payment, lower interest rates, and reduced private mortgage insurance premiums (PMI). USDA loans are the most affordable of all government-backed loans.

The United States Department of Veteran Affairs (VA) loans

VA loans are available in any state to active military personnel, armed forces, National Guard, veteran members, reserves, and surviving spouses. The loan is 100 percent financed with no money down and provides lower interest rates and fewer fees.

HomeReady

This home affordability program from Fannie Mae provides low fixed-rate mortgages with only 3 percent for a required down payment and reduced PMI premiums. They subsidize the interest rates through the Federal Housing Finance Agency (FHFA) First-Time Home Buyer Mortgage Rate Discount. There are specific qualifiers, so be sure to check your eligibility.

Down payment assistance programs (DPA)
These programs are designed to assist first-time homebuyers with their down payment through these grants, which are nonrepayable funds provided to buyers by the state or local government, nonprofit organizations, or housing foundations. These grants vary by location, so you’ll need to check, which, if any, are available to you.

National Homebuyers Fund (NHF)

The NHF (a nonprofit public benefit corporation) provides grants for up to 5 percent of the purchase price, paid out as cash at closing. The only caveat is that if you move, sell, refinance, or cease to make the house your primary residence for at least five years, you’ll need to pay all the money back.

Forgivable loans

When applying for your mortgage, some lenders will provide a second mortgage at the same time to fund your down payment, and when combined with the first mortgage, it can encompass the entire purchase price. It also has a zero percent interest rate and does not require you to make monthly payments over the life of the loan. This second mortgage does not need to be repaid, making it a forgivable loan, so long as you don’t refinance, sell, or stop using it as your primary residence before the loan forgiveness period ends (usually a minimum of five years). Otherwise, you’ll be required to repay it in full.



First-time homebuyer programs vary by state, so consult with your real estate agent and lender to see which programs are offered in your area.