While researching your first mortgage, you’ve probably run across “first-time homebuyer” programs. These loan options and financial assistance programs can make homeownership more accessible, especially for buyers who don’t have a robust credit history or a large down payment saved.
Depending on your situation, a first-time homebuyer program can make the difference between buying now and waiting. With the right strategy, you may also be able to combine multiple programs to reduce your out-of-pocket costs at closing. More on this below.
Programs designed specifically for first-time homebuyers
First-time homebuyer programs exist largely because buying your first home can be harder than buying your second.
Repeat buyers can use equity from a previous home sale for a down payment or closing costs on a new purchase. First-time buyers don’t have that advantage, which is where these programs can help. Think smaller down payments, more flexible credit requirements, reduced mortgage insurance costs, or help with closing costs.
While some of these programs carry names from government-sponsored enterprises like Fannie Mae and Freddie Mac, the mortgage itself comes from a private lender, such as a bank, credit union, or mortgage company. Some lenders won’t advertise the specific program by name; instead, you may see something like “3% down conventional loan.”
Here’s a quick overview of some first-time homebuyer programs.
Freddie Mac HomeOne:
- 3% down payment
- No income limits
- At least one borrower must be a first-time homebuyer for a purchase loan
- Requires homebuyer education if all borrowers are first-time buyers
- Typically requires a usable credit score, with many lenders looking for 620 or higher
Fannie Mae HomeReady:
- Helps low-income borrowers, including first-time and repeat buyers
- 3% down payment
- Income limits apply: 80% of the area median income for property’s location
- Allows supplemental boarder or rental income
- Reduced mortgage insurance (PMI) compared to some alternatives
- Requires homebuyer education if all occupying borrowers are first-time buyers
Freddie Mac Home Possible:
- Helps low- and very low-income borrowers
- 3% down payment
- Flexible down payment sources
- Income limits apply: 80% of area median income
- May allow certain multi-unit purchases
- Best for buyers with limited savings who meet income limits
State Housing Finance Agency (HFA) Programs
- State-run affordable housing programs
- May offer affordable mortgages or down payment assistance
- Many help first-time buyers
- Eligibility rules vary by state and program
Mortgage loans that are popular with first-time buyers
The loan types below aren’t exclusively for first-time buyers, but the flexibility each one offers can make them a natural fit when buying your first home. They can be a great help for any subsequent home purchases, too.
FHA loans
The Federal Housing Administration (FHA) backs FHA loans. These loans often help buyers with lower credit or limited savings.
You can qualify for an FHA loan with a credit score as low as 580 with 3.5% down, or as low as 500 with 10% down. Down the road, FHA borrowers have solid refinance options: the FHA Streamline Refinance requires less documentation than many other refinancing options and typically doesn’t require an appraisal. Cash-out refinancing is also available.
VA loans
VA loans are exclusively available to eligible active-duty servicemembers, veterans, and eligible spouses. No matter how many homes you’ve purchased in the past, this is arguably one of the best mortgage options on the market if you qualify.
With a VA loan, borrowers typically don’t need a down payment or private mortgage insurance. Rates also tend to be lower than comparable conventional loans. The VA also offers an Interest Rate Reduction Refinance Loan (IRRRL), a streamlined refinance that can help you lower your rate down the road.
USDA loans
USDA loans help eligible buyers purchase homes in qualifying rural areas with no down payment. The U.S. Department of Agriculture backs these loans, and borrowers must meet income limits to qualify. In general, household income can’t exceed 115% of the median household income for that area.
If you already have a USDA loan, the USDA Streamline-Assist refinance option lets you refinance without a new appraisal. The program also does not consider credit history or debt-to-income ratio, except for a 12-month mortgage payment verification.
Conventional 97
The Conventional 97 option lets borrowers put just 3% down on a primary residence, typically with a credit score of 620 or higher. There are no income limits, and unlike FHA loans, borrowers can usually request PMI removal once the loan balance reaches 80% of the home’s original value. At least one borrower must meet the first-time homebuyer definition, and homebuyer education is required when all occupying borrowers are first-time buyers.
Down payment assistance and grant programs
A first-time homebuyer may not realize the power of these programs. Down payment assistance can be a huge perk, and it comes in three main forms:
- Grants: This is money you typically don’t have to repay. State or federal housing agencies often fund these programs.
- Forgivable loans: This is a second loan the lender forgives after you stay in the home for a predetermined number of years.
- Deferred payment loans: With these loans, you don’t make monthly payments. Instead, you repay the balance only when you sell, refinance, or pay off your first mortgage.
When it comes to Housing Finance Agencies (HFAs), every state has its own. Eligibility for its programs can vary based on your income, location, and even your profession. Some programs limit eligibility to borrowers earning 80% or less of the area median income, while others allow higher incomes.
Mortgage credit certificates
One of the most valuable but often overlooked benefits for first-time homebuyers is a Mortgage Credit Certificate (MCC). This dollar-for-dollar federal tax credit can reduce your tax bill by letting you claim a fixed percentage of the mortgage interest you paid that year.
Each state’s Housing Finance Agency sets its own MCC credit rate. The credit generally equals 20% and 40% of your annual mortgage interest.
You can also use this credit to help qualify for a loan because lenders may factor it into your effective income. Just keep in mind that you need to apply before you close on your home. If your lender doesn’t bring it up, ask about it.
Builder incentives
Another perk that isn’t strictly limited to first-time homebuyers but can still be useful: builder incentives. They can be especially powerful if you’ve got limited savings.
Mortgage rate buydowns
Builders typically use mortgage rate buydowns to make your monthly payments more affordable. For example:
- A “2-1 buydown” temporarily lowers your interest rate by 2% for the first year and 1% for the second year. That makes your early payments more reasonable.
- A “permanent buydown” is when the builder pays to lower your rate for the life of the loan. This can save you significantly over time.
Closing cost assistance
Another common incentive is closing cost assistance—a credit the builder may offer to cover some or all of your closing costs. You may be able to use this credit for title insurance costs, HOA initiation fees, prepaid taxes, or insurance. The builder may specify which lender you must use to get this credit, but if all other terms look good, it can save you considerable money.
Design center credits and upgrades
Design center credits and upgrades can come in the form of free or discounted appliance packages, higher-quality flooring, upgraded cabinets, or landscaping credits. Your monthly payment won’t decrease, but you may be able to afford a more livable home with these credits.
Special financing programs
Builders may also offer below-market promo interest rates or other special financing through a partner lender.
Things buyers should watch out for
These incentives may sound like obvious wins, but there are tradeoffs to watch for. Again, specific builder promotions may require that you use a lender that may otherwise not be your first choice. Also compare the home’s base price against similar homes to see whether the incentives are really saving you money.
To compare the true cost, compare offers from other lenders to find out what gives you the best long-term value. A lower interest rate or closing cost credit generally matters the most.
How to find programs in your state
To find helpful programs in your specific state, start with your U.S. Housing and Urban Development (HUD) state resources page. Here you’ll find homeownership and assistance programs by location. From there, visit your state Housing Finance Agency to look for first-time buyer programs, down payment assistance, and participating lenders.
Also check your city or county housing and community development office, as many local governments and nonprofits run their own grant or assistance programs. Local programs may offer additional help beyond state programs.
HUD also has a page that you can use to find a HUD-approved housing counseling agency if you’d like an expert to talk you through all your options. Housing counselors can help you build a budget, compare loan options, and understand which programs you may qualify for. You can also use the CFPB’s housing counselor search for additional guidance.
Program stacking: How to maximize benefits
Some first-time buyer programs can work together to increase your savings. With a bit of strategy, you may be able to lower your upfront costs and even your effective monthly housing costs.
Here’s a hypothetical example of how program stacking might work:
- First mortgage: Finance the purchase with an FHA loan at a competitive fixed rate. FHA loans require at least 3.5% down.
- Down payment help: A state down payment assistance program provides assistance equal to 3.5% of the purchase price, which you apply toward the FHA down payment.
- Closing costs: FHA rules allow the seller to pay up to 6% of the home’s sales price toward eligible closing costs and prepaid expenses. You negotiate for the seller to cover most of these costs.
- Ongoing tax break: You add a Mortgage Credit Certificate from your state HFA. The resulting federal tax credit can reduce your tax bill and effectively lower your monthly housing costs.
Together, these resources could substantially reduce the cash you need to purchase a home and leave more room in your budget than the mortgage payment alone might imply.
Every program has its own rules, and lenders don’t allow every combination. So ask your loan officer to explain exactly which programs you can safely use together in your state.
The takeaway
First-time homebuyer loans and programs can be a huge boon for would-be homeowners who don’t currently have a sizable down payment, a stellar credit score, or a high income. Despite the name, you can often use “first-time” homebuyer programs multiple times. Typically, if you haven’t owned a principal residence within the past three years, you may be eligible to use a first-time homebuyer program again.
Make the effort to understand which of these loans and programs you can use simultaneously. Strategically stacking them could save you considerable money and open the door to a home you might not have been able to buy otherwise.
Frequently asked questions
Do I have to use a specific lender to access first-time homebuyer programs?
You may have to use a specific lender to access many state or nonprofit first-time homebuyer programs. Builder incentives in particular may only be available when you apply with the builder’s partner lender.
How do I find first-time homebuyer programs available in my state and city?
To find first-time homebuyer programs in your state and city, start by visiting your state’s Housing Finance Agency. HUD also lists state and local homeownership resources.
Are first-time homebuyer loans and programs always the best choice versus a standard mortgage?
First-time homebuyer loans and programs can make homebuying more accessible by lowering barriers around down payments, credit requirements, or upfront costs. If you don’t need this type of assistance, less restrictive standard mortgages offering lower total loan costs could be a better fit.
How can first-time homebuyer programs increase my purchasing power?
First-time homebuyer programs can increase your purchasing power by lowering your upfront costs or improving how much you can qualify to borrow. A Mortgage Credit Certificate, for example, gives you a dollar-for-dollar tax credit on a portion of your annual mortgage interest, which lenders may factor into your qualifying income.
Can I use first-time homebuyer loans and programs more than once?
You may be able to use several first-time homebuyer loans and programs more than once, as long as you meet the program’s eligibility requirements again.
