A Guide to First-Time Homebuyer Programs | Mortgages and Advice

The excitement of buying your first home is often overshadowed by the daunting process of borrowing your first mortgage. Even after years of saving for a down payment, you may feel that the added expenses, fees and closing costs can make the American dream of homeownership feel unattainable.

But buying a home doesn’t have to be an impossible feat – especially for aspiring homeowners who stand to benefit from programs like down payment assistance and low-down-payment mortgages. Read the guide below to learn more about your options as a first-time homebuyer.

A Guide to First-Time Homebuyer Programs

Many state and local governments offer down payment assistance, tax credits or grants for residents who are buying their first home. The terms, availability and eligibility requirements of these programs will vary based on where you live. Here are a few types of location-based first-time homebuyer programs:

  • Down payment assistance grants are typically need-based gift money that doesn’t need to be repaid. In most cases, you’ll have to fall under a certain income threshold to qualify for a first-time homebuyer grant.
  • Down payment assistance loans are second mortgages used to cover closing costs or a down payment. Under some programs, these loans can be partially or fully forgiven once certain criteria are met, such as living in the house full time for a number of years.
  • First-time homebuyer loans are mortgages that are repaid with interest. Borrowers in some areas may be able to qualify for a first-time homebuyer loan through a state housing agency that has less-strict eligibility requirements than a conventional mortgage lender.
  • Tax credits are used to reduce the amount you pay in federal or state taxes. For example, you may be able to deduct up to $2,000 worth of mortgage interest paid to lower your federal tax bill.
  • Subsidies are a form of mortgage assistance that can effectively lower your monthly mortgage payments. Depending on the location, you typically need to meet certain income requirements to qualify for a subsidy.

You can see a full list of programs by state on the Department of Housing and Urban Development website. You should also contact your local city or county government to learn more about first-time homebuyer assistance in your area.

In addition to first-time homebuyer programs offered by state and local governments, mortgage borrowers may also qualify for down payment assistance through their lender. Here are a few mortgage lenders that have homebuyer grants and loans to help you cut down on closing costs:

5 Mortgage Lenders With Down Payment Assistance Programs
What Is It?Who Qualifies?
Ameris BankA second mortgage worth up to 4% of the purchase price ($12,500 maximum) to be used toward a down payment and closing costs. The loan can be forgiven after you live in the home for five years.Must be a first-time homebuyer using a Fannie Mae HomeReady or Freddie Mac Home Possible mortgage. Income limits and location restrictions apply. A homebuyer education course is required.
Bank of AmericaA grant worth up to $7,500 to be used toward closing costs or discount points. Or in select markets, buyers may qualify for up to 3% of the purchase price ($10,000 maximum) to be used for a down payment.Must meet qualifying income limitations and purchase a home within a certain geographical area. The loan-to-value ratio must be 80% or greater. A homebuyer education course may be required.
Chase Home LendingA $2,500 or $5,000 lender credit in select markets to be used toward discount points, closing costs or a down payment.Must purchase a home within an applicable census tract. Borrower does not need to be a first-time homebuyer.
PNC Bank

A grant worth up to $5,000 to be used toward closing costs, prepaid costs or a down payment.

Must be purchasing a property in an eligible market and have a household income at or below 80% of the area’s median income. Borrower does not need to be a first-time homebuyer.

U.S. BankAssistance funds worth up to either $5,500 or 3% of the purchase price ($10,00 maximum), whichever is greater, to be used toward the down payment, closing costs or required home repairs.Must be used with a U.S. Bank American Dream first-time homebuyer loan. Down payment assistance is based on income and home price, among other qualifications.

With a conventional 97 mortgage, first-time homebuyers may be able to secure a home loan with as little as 3% down – in other words, a 97% loan-to-value ratio. The program guidelines are determined by Fannie Mae and Freddie Mac, and these first-time homebuyer mortgages are offered through conventional lenders like banks and credit unions.

Borrowers may be required to take a homeownership education course to qualify, and some programs determine your eligibility based on the area median income. Keep in mind that mortgage insurance is typically required for LTV ratios of less than 80%. Here are a few common conventional loan programs for first-time buyers:

  • HomeReady: First-time homebuyers who make at or below 80% of their area median income and have limited cash for a down payment may qualify for a Fannie Mae HomeReady mortgage. This program requires at least 3% down, and applicants should have a credit score of 620 or greater to qualify. The main benefit is the competitive pricing, which is better than or equal to a standard loan through Fannie Mae.
  • HomePath Ready Buyer: Eligible first-time buyers may receive up to 3% of the purchase price in closing cost assistance for buying a Fannie Mae HomePath property. To qualify, the buyer’s gross income must be at or below 100% of the area median income.
  • Home Possible: A Freddie Mac Home Possible mortgage gives low-income borrowers (at or below 80% of the area median income) a way to buy a home with less-than-stellar credit and as little as 3% down. For this program, Freddie Mac allows the use of a co-borrower who doesn’t live in the home, giving applicants the opportunity to enlist the help of a creditworthy friend or relative to qualify.
  • HomeOne: The Freddie Mac HomeOne program allows first-time homebuyers to get a mortgage with as little as 3% down, and it doesn’t have income thresholds like with a Home Possible mortgage. HomeOne accommodates various types of properties, including single-family homes, condos and townhomes.

Get in touch with several mortgage lenders to explore which options are available to you.

Mortgages that are insured by government agencies often come with more lenient eligibility criteria for an applicant’s credit score and down payment. Although these mortgages aren’t limited to first-time homebuyers, they can provide a good option for borrowers who are purchasing their first property. Here are a few types of government-insured mortgages that first-time homebuyers should consider:

FHA Loans
An FHA loan is a mortgage that’s insured by the Federal Housing Administration, which allows borrowers to buy a home with as little as 3.5% down. This type of mortgage has less stringent credit score requirements than with a conventional loan; the minimum credit score needed is 580, and borrowers may qualify with a credit score as low as 500 if they come prepared with a 10% down payment.

You can seek this type of government-backed mortgage through FHA-approved lenders. Keep in mind that the property’s purchase price must meet the FHA loan limits for your area, and you’ll have to pay mortgage insurance if you put less than 20% down.

VA Loans
Active-duty and retired military personnel may be eligible for a zero-down-payment mortgage through a VA loan from the Department of Veterans Affairs. Since the VA guarantees a portion of your loan, you may qualify for a lower interest rate than you would get with other types of mortgages. This also allows you to put 0% down without paying private mortgage insurance, or PMI.

To qualify for a VA home loan, you’ll need a Certificate of Eligibility that proves to the lender you meet the military service requirements. VA loans don’t require a down payment, but you’ll have to pay a VA funding fee worth between 1.4% and 3.6% of the total loan amount, which can be rolled into the loan amount. For first-time VA loan borrowers, the fee is capped at 2.3%.

USDA Loans
A mortgage either backed or funded by the U.S. Department of Agriculture is known as a USDA loan. These no-down-payment mortgages are designed to help low-income homebuyers purchase homes in designated rural or suburban areas, defined as those with a population of less than 35,000. The income limits vary based on the size of your household and the area’s median income.

  • Start locally. Your local mortgage loan officer should have a comprehensive understanding of the first-time homebuyer programs you may be eligible for in your area. Do your research, too: It might pay off to reach out to your state and local housing agencies to get a better idea of the programs available to you.
  • Plan ahead. While first-time homebuyer programs like down payment assistance and tax credits can potentially save you thousands, you should still make sure you can afford closing costs if there are any hiccups in the application process. If necessary, it may make sense to wait and save up for your down payment instead of relying on homebuying assistance programs.
  • Compare offers. Reach out to multiple lenders during the mortgage preapproval process so you can find the offer that makes the most sense for you financially. You may be able to find a lower rate by comparing offers from at least three lenders, and you may find that you qualify for down payment assistance through a certain bank or credit union. To minimize the negative impact to your FICO credit score, you should limit your mortgage shopping to a 45-day window. Multiple credit inquiries in this time frame will count as a single inquiry.
  • Understand your options. With so many types of mortgages available, it will take some ambitious legwork to find the right home loan for your needs. Be sure to compare everything at your disposal, such as fixed-rate versus adjustable-rate mortgages and conventional versus government-backed mortgages. If you get overwhelmed, reach out to a financial advisor who can guide you through the process.

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