Need Help Buying a Home? 13 Government Programs for First-Timers

If you’re buying a home for the first time, it sure would be nice to get a little help. Saving up for a down payment plus closing costs — and don’t forget the movers — can be intimidating. But it can be hard to know where to look for help.

Chiquita Pittman is an experienced agent in New Jersey, where she sells 20 more condos than the average agent. She conducts first-time homebuyer webinars for the state quarterly, and she says that most states have some really great programs where first-time homebuyers can combine the grant money from the state with other grants and “can really buy a house for very little money down.”

If you’re ready to buy, what kind of first-time homebuyer government programs are available?

Money used, along with a first time home buyer government program, to buy a house.
Source: (Ryan Quintal / Unsplash)

Down payment assistance

You should be able to find some form of down payment grants and loans to help first-time homebuyers, either at the state or local level. A simple internet search with the keywords “down payment + first time homebuyer + your state” should get you started.

In Pittman’s state of New Jersey, the state offers a $10,000 interest-free, forgivable loan to qualifying first-time homebuyers. If the buyer stays in the property five years or more, they don’t have to pay it back. The program requires that borrowers take an online course about budgeting and home ownership.

Pittman is a big fan of the online courses because a home is, “the biggest investment [they’re] going to make in their life.” She thinks these courses set homeowners up for success.

“Knowledge is power, so we try to get them as much information as we can in the beginning,” to help them understand the responsibilities of homeownership.

Some states also offer down payment loans, which must be repaid. For example, the state of Massachusetts gives first-time homebuyers up to 5% of the purchase price, or $15,000 (whichever is less) toward their first home. This fixed-rate loan has a 2% rate, and either comes due when you sell or refinance, or after 15 years.

Closing cost assistance

Closing costs can run between 2% and 5% of the home’s total purchase price. If you’re a first-time homebuyer, you might not have realized that you needed to save enough to cover them, too. Getting help paying them could save you thousands of dollars.

States and charities also offer closing cost grants, which you can sometimes combine with down payment assistance. Search for a HUD-approved local or state housing commission to find out what’s available, or check out this list on their website.

A teacher, who qualifies for a first time home buyer government program, writing on a board.
Source: (Christina @ wocintechchat.com / Unsplash)

Government-backed mortgage loan assistance

The federal government has also established programs to help first-time homebuyers realize their dream of homeownership. They’ve created programs to help veterans, firefighters, Native Americans, and more.

Even if you don’t fall into one of those categories, you could find a cheap home through HUD or buy a home with a low down payment through the Federal Housing Administration (FHA).

Researching first-time homebuyer government programs could help you buy sooner.

FHA loans

The FHA offers loans that help first-time homebuyers with lower credit scores and down payments. You can receive an FHA loan with a credit score as low as 500 if you have a 10% down payment, or you can put down as little as 3.5% if you have a credit score of 580 or above.

The FHA partners with approved lenders to back these loans, serving as a guarantor. You can find an approved lender in your area by searching on the FHA website. You will have to carry mortgage insurance if you go this route.

VA loans

The Department of Veterans Affairs offers VA loans to qualified veterans. If you’re a service member, veteran, or eligible surviving spouse you can qualify for a loan. You must meet minimum income and credit score requirements which are set by the lender who partners with the VA. Typically, the minimum credit score to secure a VA loan is at least 620.

You’ll usually get a competitive interest rate, and there’s no down payment requirement. With a conventional loan, if you put less than 20% down, lenders require that you carry a private mortgage insurance policy. This policy helps mitigate their risk and would pay out to them if you defaulted.

But with a VA loan, you won’t have to pay for mortgage insurance “MI,” which can add hundreds of dollars to your monthly payment.

USDA loans

The U.S. Department of Agriculture also has a mortgage loan program. Before you think “I don’t want to be a farmer!” — don’t worry. While the USDA does only lend in certain areas, its coverage map often overlaps with the suburbs.

If both you and the property you want to buy qualify, then you can secure a mortgage on a home with no money down. Interest rates can be as low as 1%. Requirements include:

  • You must live full-time in the home.
  • The house’s square footage must be 2,000 square feet or less.
  • The home’s market value can’t exceed the applicable loan limit for your area.
  • Your debt-to-income ratio can’t exceed 41%.
  • The home can’t have an in-ground swimming pool.
  • You can’t use the home for income-producing activities (including renting out part of it).

HUD Homes

When a home that was guaranteed by the FHA goes into foreclosure, it can end up on the HUD home list. These real-estate-owned (REO) properties are sold “as is,” and you cannot negotiate with HUD to make any repairs before closing. However, to reflect this risk, HUD often prices them at a discount, and you could find a deal.

FHA Section 203(k) loan

Have you found the perfect fixer-upper — in a great neighborhood, cheap, meets all your needs — but are worried about the rehab costs? Look into an FHA Section 203(k) loan.

The FHA backs these loans, basing the total mortgage amount on the home’s projected value after improvements. The total property value can’t exceed the FHA mortgage limit for your area.

You borrow the money to both buy and improve the home, rolling them into one loan. Criteria include that the improvements must cost more than $5,000, and you’ll need a minimum 3.5% down payment.

Good Neighbor Next Door

This program helps people who serve the community afford to live in it. Through this program, firefighters, teachers, and law enforcement professionals get access to discounted properties (50% off!) before they’re open for sale to the general public.

When HUD acquires a home, they will list it for sale exclusively to homebuyers who qualify as “good neighbors” for seven days. Eligible homebuyers can place an offer. If more than one GNND borrower applies, they’re all entered into a random lottery to see who gets the house.

Your down payment can be as little as $100, but you’ll sign a second mortgage for the amount of the 50% discount. There’s no interest charged and no payments due on this  “silent note.” After three years of living in the home, HUD forgives the second mortgage. If you sell or move from the home before three years, you could be on the hook for the second mortgage.

What are the requirements?

  • You have to be employed in one of the approved careers when you buy the house.
  • You must live there as the owner-occupant for at least three years.
  • If you find a home you like, you have to submit your interest in purchasing it to HUD.
  • Lenders set debt-to-income and credit score limits for borrowers through this program.

Native American Direct Loan

The Native American Direct Loan program is a loan direct from the VA. It’s offered to eligible Native American veterans and their spouses to buy, improve, or build a home on federal trust land.

Eligible borrowers won’t need a down payment and will not have to pay mortgage insurance. These loans also have low closing costs. You have to agree to live in the home, and you’ll have to meet income and credit score requirements.

Section 184 Indian Home Loan Guarantee

If you’re a member of a federally recognized tribe, you can apply for a loan through the Section 184 Indian Home Loan Guarantee. HUD guarantees the loan with the lender, so you can borrow if you have a lower down payment or less-than-average credit score.

With this loan you can build a home, rehabilitate or buy an existing property, or refinance your current mortgage. However, the property has to be within an eligible area.

A house you can purchase using a first time home buyer program.
Source: (Jeremy Zero / Unsplash)

GSE loan assistance

Fannie Mae and Freddie Mac are GSEs: government-sponsored enterprises that the government supports, but does not own. They have been government-sponsored since the Great Recession in 1938, so we’re including them here.

Fannie Mae Standard 97% LTV

If you’re a first-time homebuyer, this loan product lets you borrow up to 97% of your new home’s value. That means you only need a 3% down payment, and you can use down payment assistance programs.

Eligible properties under this loan include a one-unit principal residence, condos, co-ops, planned unit developments and standard manufactured housing. It’s a fixed-rate, 30-year mortgage, though some adjustable-rate mortgages (ARMs) are eligible. To qualify, you must take a borrower education course and meet credit and income requirements.

Fannie Mae HomePath

Fannie Mae Home Path is not a lending program. Instead, it’s a program that sells Fannie Mae-owned homes. If a borrower defaults on a mortgage that’s owned by Fannie Mae, then Fannie Mae takes possession of the property. These foreclosures are then sold to qualified borrowers at a discount.

You can search online for Fannie Mae HomePath homes. If you’re buying a HomePath property, you can also receive up to 3% closing cost assistance if you take a homeownership education course.

Fannie Mae HomeReady

The Fannie Mae HomeReady program helps low-income first-time homebuyers who have credit scores above 620 qualify for a mortgage. Your down payment can be as low as 3%, and the funds can come from grants and gifts.

These loans have competitive interest rates and reduced mortgage insurance requirements if your LTV is above 90%. Mortgage insurance is cancellable when you reach above 20% equity in your home.

Freddie Mac HomeOne

With no geographic or income limits, HomeOne is one of Freddie Mac’s most widely accessible loan products. Qualified first-time borrowers only have to put down 3% to receive fixed-rate financing. You can use it to buy a single-family home, townhome, or condo.

If all borrowers on the loan are first-time homebuyers, you’ll have to take a homebuyer education course. You may also be eligible for lower monthly MI under this program as well, depending on your LTV.

Freddie Mac Home Possible

Freddie Mac Home Possible® gives lower income borrowers the chance to finally own a home. The low down payment of 3% can come from family, gifts, employer assistance, or sweat equity. Co-borrowers can also help you qualify for the loan.

There are no geographic limits, but they limit your income to 80% of the area median income. While you will have to carry mortgage insurance if you put down less than 20%, it’s cancellable once your equity reaches 20%.

With the number of government-sponsored first-time homebuyer programs out there, you should be able to find one that meets your needs. Happy mortgage hunting!

Header Image Source: (Brandon Mowinkel / Unsplash)