First-time homebuyer programs and grants can help make your goal of homeownership a reality. We’ve rounded up some of the best national grants, programs and loans for first-time homebuyers that can help get you into your first home without needing to make a 20 percent down payment.
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10 first-time homebuyer programs in 2022
- 1. FHA loan
- 2. USDA loan
- 3. VA loan
- 4. Good Neighbor Next Door
- 5. Fannie Mae or Freddie Mac
- 6. Fannie Mae’s HomePath ReadyBuyer Program
- 7. Energy-efficient mortgage (EEM)
- 8. FHA 203(k) loan
- 9. State and local first-time homebuyer programs and grants
- 10. Native American Direct Loan
1. FHA loan: Best for buyers with low credit and a smaller down payment
Insured by the Federal Housing Administration, FHA loans typically come with smaller down payment 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 percent down. If you put down less than 20 percent, however, you will have to pay FHA mortgage insurance, which includes a 1.75 percent upfront fee and annual premiums.
- Strengths: Credit score as low as 500 accepted; 3.5 percent low down payment option
- Weaknesses: Mortgage insurance; home must meet FHA requirements
Read more about FHA loans.
2. USDA loan: Best for buyers with a low or moderate income in eligible areas
The U.S. Department of Agriculture, or USDA, guarantees loans for some rural homes, and borrowers can get up to 100-percent financing (in other words, there’s no down payment requirement). 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.
- Strengths: No down payment; potentially lower credit score requirements (640 is typical)
- Weaknesses: Limited to buyers in designated areas; guarantee and annual fees
Read more about USDA loans.
3. VA loan: Best for active-duty military, veterans and their spouses
Qualified U.S. military members (active duty, veterans and eligible family members) can apply for loans backed by the U.S. Department of Veterans Affairs, or VA. VA loans are a great deal because they come with lower interest rates compared to most other loan types and don’t require a down payment. Borrowers, however, will need to pay a funding fee, but it can be rolled into your monthly loan costs. Some service members may be exempt from paying this fee, as well.
- Strengths: 100-percent financing; no mortgage insurance
- Weaknesses: Funding fee; limited to honorably-discharged eligible military members
Read more about VA loans.
4. Good Neighbor Next Door: Best for buyers employed in public service
The Good Neighbor Next Door program, sponsored by the U.S. Department of Housing and Urban Development (HUD), provides housing aid for law enforcement officers, firefighters, emergency medical technicians and pre-kindergarten through 12th-grade teachers. Through the program, borrowers can receive 50 percent off a home in a “revitalization area,” provided they live in the home for at least three years. You can search for properties available in your state on the program’s website.
- Strengths: 50 percent discount on list price
- Weaknesses: Limited to borrowers in certain public service professions; limited properties; longer-term commitment required
Read more about Good Neighbor Next Door.
5. Fannie Mae or Freddie Mac: Best for buyers with strong credit but a lower down payment
The government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac set borrowing guidelines for conventional loans they’re willing to buy for the secondary mortgage market. With a 3 percent minimum down payment, these programs are an affordable option for borrowers with a strong credit score and a lower down payment.
- Strengths: 3 percent down payment
- Weaknesses: Minimum credit score of 620; private mortgage insurance (PMI) required if putting down less than 20 percent
Read more about conventional loans.
6. Fannie Mae’s HomePath Ready Buyer: Best for first-time buyers who need help with closing costs
Fannie Mae’s HomePath ReadyBuyer program is geared toward first-time buyers interested in a foreclosed home (“HomePath” home). After taking a required online homebuyer education course, eligible borrowers can receive up to 3 percent in closing cost assistance toward the purchase of a HomePath property, which is a foreclosed property owned by Fannie Mae.
- Strengths: Potentially affordable home options; low down payment requirement; closing cost assistance
- Weaknesses: Limited choice of properties, which might need repairs; homebuyer class
Read more about Fannie Mae’s HomePath ReadyBuyer program.
7. Energy-efficient mortgage (EEM): Best for buyers interested in an energy-efficient home
Making green upgrades can be costly, but you can get an energy-efficient mortgage (EEM) (either a conventional loan or one backed by the FHA or VA) to help finance them. This type of mortgage allows you to tack the cost of energy-efficient upgrades (think new insulation, a more efficient HVAC system or double-pane windows) onto your primary loan, without requiring a larger down payment.
- Strengths: Can make energy-efficient improvements upfront with no additional down payment or need to requalify
- Weaknesses: Larger mortgage payments; must obtain energy assessment and follow loan requirements for upgrades
Read more about energy-efficient mortgages (EEM).
8. FHA 203(k) loan: Best for buyers or investors of homes that need work
Backed by the FHA, an FHA 203(k) loan can help you if you’re buying a fixer-upper. This type of loan allows you to borrow funds needed to pay for home improvement projects and roll the costs into one loan. The improvements must cost more than $5,000 and you’ll need to make a minimum 3.5 percent down payment. You’ll also want to make sure you’re working with a contractor who is familiar with 203(k) loans and their timeline.
- Strengths: Low down payment; one mortgage payment; ability to finance more expensive improvements
- Weaknesses: Limited to $35,000 in repairs; larger mortgage payments
Read more about FHA 203(k) loans.
9. State and local first-time homebuyer programs and grants: Best for first-time buyers who need down payment assistance
Many states and municipalities offer first-time homebuyer grants (which don’t have to be repaid) and low-interest mortgage programs. Check your state’s housing finance authority website or contact a real estate agent or local HUD-approved housing counseling agency to learn more about first-time homebuyer loans in your area.
- Strengths: Down payment and closing cost assistance; lower-interest mortgages
- Weaknesses: Income limits; buyer education course usually required
Read more about first-time homebuyer programs by state, including:
- California first-time homebuyer grants and programs
- Florida first-time homebuyer grants and programs
- Illinois first-time homebuyer grants and programs
- New York first-time homebuyer grants and programs
- Pennsylvania first-time homebuyer grants and programs
- Texas first-time homebuyer grants and programs
10. Native American Direct Loan: Best for Native American veterans
The Native American Direct Loan (NADL) provides financing to eligible Native American veterans and their spouses 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.
- Strengths: No down payment requirement; no mortgage insurance; minimal closing costs
- Weaknesses: Eligibility requirements; funding fee
Read more about the Native American Direct loan.
What are the benefits of first-time homebuyer programs?
First-time homebuyer programs, grants and loans are a form of financial assistance for buyers, usually those who meet certain income restrictions and have strong credit scores. They can apply to those who have never owned a home, or those who owned a home in the past, but haven’t owned one in the previous three years.
Here are a few different ways you could benefit from these programs:
- Grants: Some areas offer cash to put towards home-related costs, such as your down payment or closing costs.
- Assistance with closing fees: Some loans place a cap on how much is charged for closing costs.
- Deferred payments: Some loans won’t charge interest and won’t need to be repaid until the homeowner sells the home, or refinances or pays off the mortgage.
- Savings on interest: Some organizations offer to pay for or subsidize the interest on the mortgage, or help borrowers qualify for loans with lower interest rates.
- Loan forgiveness: Homeowners who stay in the home for a certain period of time will have a portion of their debt cancelled (although you could still be liable from a tax standpoint).
- Down payment assistance: Some programs allow homebuyers to put down a small down payment, or none at all.
Not all of these programs will be available in your area or for your situation. There are also certain restrictions, such as financial need, so do some research or speak with a mortgage professional to see if you qualify.
What to consider with first-time homebuyer programs
Before seeking out a first-time homebuyer program, make sure you meet the definition of a first-time homebuyer. Many nonprofit and government programs consider you a first-time homebuyer if you haven’t owned a home within the last three years. This includes investors who own rental or investment properties, whether or not it’s considered your primary residence.
Some government-backed programs, such as an FHA or USDA loan, require that the property meets certain standards before qualifying. There could be income restrictions for local and state programs, as well.
Regardless of what programs you may qualify for, purchasing a home is a major financial decision and shouldn’t be taken lightly. That means look at what you can afford, which includes factoring in maintenance costs. Once you figure out a realistic budget, speak to a lender with experience with first-time homebuyers. This might not be your bank — it could be a credit union or other type of lender.
“Lenders who have ample knowledge about first-time homebuyer programs in your area and knowing what you might qualify for can save you thousands of dollars in the long run,” says Diego Corzo, a Realtor with Keller Williams Realty in Austin, Texas.
Best mortgage lenders for first-time homebuyers
There is no shortage of mortgage lenders, but as a first-time homebuyer, it might be a good idea to work with a broker who can help you navigate your options. Here are a few of the best lenders to consider:
Truist is one of the biggest banks in the U.S. — you’ll find it in every state except for Alaska, Arizona and Hawaii. Its loan products include low-down payment mortgages like FHA, VA and USDA loans, as well as 3-percent conventional loans, and it also offers a lower-PMI loan in exchange for a higher rate.
LowRates.com is a brick-and-mortar and digital mortgage lender operated by Sun West Mortgage Company, available to borrowers in 48 states and Puerto Rico. With fast closing times and a variety of loans, including VA and USDA options, LowRates.com can be a viable option for many new buyers.
Navy Federal Credit Union is open to military service members and eligible family members and specializes in VA loans. It has limited offerings for other kinds of loan products, but if you qualify to bank there, you could get a very competitive rate on your mortgage.
The first-time homebuying process
Step 1: Figure out your budget (and stick to it)
Being honest with yourself, your real estate agent and your mortgage lender is key — you don’t want to wind up with a house you can’t afford. Figure out how much you’ll really be able to afford every month, factoring in maintenance costs and leaving room for unexpected emergencies. If you’re buying with a partner or spouse and you each have an income, consider what would happen if one of those income sources were to disappear, either by choice or due to a layoff or other unforeseen circumstances.
Step 2: Get quotes from at least three lenders
Step 3: Get preapproved for a loan
Once you decide on a lender, get preapproved for your mortgage before you start shopping for a home. A preapproval shows sellers that you’re a serious buyer, and it’ll help you shop confidently within a particular budget. Be prepared for a lender to dig into all aspects of your financial life in order to preapprove you for a loan. (Note that a preapproval isn’t a guarantee to give you a loan — that’ll come only after you’ve been approved by the underwriter.)
Step 4: Find a good real estate agent
Working with a real estate agent who’s knowledgeable about the area you plan to buy in will be a big help in your search. You want an agent who can help you find the right home, negotiate the best offer and recommend other professionals for any projects you want to do once you move in.
Step 5: Shop for your home
Make sure your agent really knows what you’re looking for, and do your research not only on the homes you’re going to see, but also on the neighborhood. It’s a good idea to visit the community you’re going to move to at different times of day, on weekdays and weekends, and talk to neighbors — and never buy a house sight-unseen. Be sure to check flood, earthquake and fire hazard maps, too.
Step 6: Make an offer
Talk to your real estate agent about a reasonable offer and be prepared for some back and forth with the seller. The housing market today is very competitive, so you’ll likely have to negotiate against other prospective buyers. Even so, it’s important not to blow your budget. At this stage, it’s easy to let your emotions get the best of you. No matter how much you love a home, be prepared to walk away if the numbers ultimately don’t work for you.
Step 7: Negotiate closing costs
There are closing costs involved with any real estate sale, and there are many ways to pay them. They might be rolled into your loan (which tends to be more expensive in the long run) or the seller might be willing to pay some of your fees. Don’t ignore this part of the transaction — you might be able to negotiate your way into waived fees and lower costs overall.
Step 8: Hire a home inspector
When you decide on a home you like and make an offer, have the home thoroughly inspected. You want to make sure there aren’t structural issues or anything else that could affect the livability of your new place. Inspections usually take a few hours, and cost a few hundred to a few thousand dollars, depending on the size of the home. The cost is entirely worth it, however — forgoing this part of the transaction would be a mistake.
Step 9: Get homeowners insurance and finalize move-in details
Homeowners insurance is usually required by the mortgage lender and helps to protect your investment. Just like with your mortgage, get quotes from several companies or work with an insurance broker who can shop rates for you. If your home is located in a federally-designated flood zone, you’ll need to buy flood insurance, too. Be sure to have the policy bound and in place the date of the closing. As you prepare for move-in day, contact your local utility, cable and internet providers to arrange new service for your move-in date. Don’t forget the most important tasks: hiring a reputable mover and packing.
Step 10: Seal the deal at closing
You’ll have to get updated pay stubs and other financial paperwork just before closing to prove your employment status hasn’t changed and that you’ll be able to make your mortgage payments. Typically within 24 hours of closing, you’ll do a final walkthrough of the property to make sure repairs, if any, were made and that the home is vacant. At the closing table, you’ll sign paperwork to finalize the loan and transfer ownership of the home from the seller to you. You’ll also be required to bring a cashier’s check made out to the escrow company. Don’t forget to bring your identification, too. After signing the closing documents, you’ll be handed the keys to your new home, and you’ll officially be a first-time homeowner.