A First Time Home Buyer’s Guide

If you’re a first-time home buyer and you don’t have a large down payment saved up, you’re not alone. Nearly half of all first-time buyers used an FHA loan, a common type of first-time home buyer loan, to purchase their properties with just 3.5% down.

Gone are the days when you needed a huge 20% down payment to buy a home. Even if you have minimal savings, you can still achieve the American Dream of owning a home by taking advantage of first-time homebuyer programs that offer down payment and closing cost assistance.

To help you navigate the sometimes-confusing world of real estate, we’ve put together this list of the best first-time homebuyer programs and grants of 2019. With the help of these programs, you may not need to put any money down to buy your dream home.

The 5 best first-time homebuyer programs and grants of 2019

Program Aid Type Requirements Cost
FHA Loan 650 credit score 3.5% down payment
USDA Loan 640 credit score and income eligibility None
Conventional 97 Loan 620 credit score and 41% or lower debt-to-income ratio 3% down payment
Good Neighbor Next Door Program Grant for 50% of home purchase price Must be a firefighter, EMT, teacher, or law enforcement officer and buy a home in a revitalization area $100 down payment
HomePath Ready Buyer Program Grant for 3% of closing costs Complete an online training course and buy a Fannie Mae property $75 course fee

FHA Home Loan Program: Best for home buyers with low credit scores

If you have a low credit score, your application for a conventional mortgage may be rejected. That’s where the FHA Home Loan Program comes in. FHA loans are insured by the Federal Housing Administration and have less stringent requirements than conventional mortgages, enabling you to buy your first home — even with bad credit.

If you have a credit score of 580 or higher, you can qualify for an FHA loan with a down payment of just 3.5%. The money for the down payment doesn’t have to come from you; it can come from a grant or a generous family member. You can also roll your closing costs into the loan, so you could potentially buy a home with no money upfront.

Even if you have a credit score below 580, you may still qualify for this program. Buyers with credit scores between 500 and 579 can get FHA loans as long as they can put 10% down.

USDA Home Loan Program: Best for homebuyers without savings

If you don’t have money saved up for a down payment and you don’t have any friends or family who can help you out, you should look into the USDA Home Loan Program. The USDA offers 100% financing home loans to low-to-middle-income buyers throughout the country, so you won’t have to put a dime down.

To qualify, you’ll need to purchase a home in an eligible rural or suburban area and have a credit score of at least 640. You’ll also need to meet the income eligibility requirements, which vary from state to state. You can check to see if you are eligible by using this tool on the USDA website.

If you qualify, you’ll be able to get a zero-down, low-interest mortgage and move into your dream home ASAP.

Conventional 97 Loan Program: Best for home buyers with minimal savings

If you have some savings, but not quite enough for a down payment, check out the Conventional 97 Loan Program from Fannie Mae. This first-time home buyer loan allows you to put just 3% down instead of the usual 20%.

To qualify, you’ll need to have a credit score of at least 620 and a debt-to-income ratio of 41% or lower.

Good Neighbor Next Door Program: Best for public servants

Calling all public servants — you can get your first home half-off if you qualify for HUD’s Good Neighbor Next Door Program.

Teachers, firefighters, law enforcement officers and emergency medical technicians are all eligible for this program as long as they purchase HUD-owned homes in revitalization areas.

A revitalization area is a part of the country that’s up-and-coming. Some of the homes in these communities need a little extra TLC, but it’s worth putting in some sweat equity to save 50% on the purchase price.

HomePath Ready Buyer Program: Best for buyers looking at foreclosed homes

HomePath Ready Buyer Program from Fannie Mae is great for first-time homebuyers who are interested in purchasing foreclosed homes. Through this program, you can get closing cost assistance that covers up to 3% of your total closing costs. All you have to do to qualify is take a short online course about the home-buying process and purchase a foreclosed property owned by Fannie Mae.

What are first-time homebuyer programs and grants?

First-time homebuyer programs provide low- or no-down-payment mortgages, offer down-payment assistance, and help with closing costs to buyers with low-to-moderate incomes.

“Every U.S. state has a state-chartered housing finance agency, and nearly every agency offers down payment assistance to first-time homebuyers,” says Anna DeSimone, the author of Housing Finance 2020. “Homebuyers can generally obtain 3.5% to 4% of the purchase price, which meets minimum down payment requirements for a conventional or FHA loan. Some agencies offer much higher amounts, such as 6% or 10%, to cover closing costs or home repairs.”

DeSimone added that grants require no repayment, and they are predominantly available from local nonprofits, housing partnership organizations, or city or town municipal housing divisions.

“Homebuyer grants are smaller amounts (less than $3,000) and most agencies offer additional incentives to Veterans, persons with disabilities, and for installing energy-efficient home improvements,” she adds.

How should I choose the right first-time homebuyer program or grant?

When choosing a first-time home buyer loan or grant, you’ll need to determine which programs you’re eligible for and how much assistance you need.

Every program and grant has its own requirements. You may need to have a certain credit score or income level to qualify. Some programs are reserved for veterans, people with disabilities, or people in certain professions, so you’ll need to do some research to figure out which programs you’re eligible for.

DeSimone explains, “Grants and down payment assistance loans are generally available to buyers in low-to-moderate income levels, and generally income restrictions are higher than the median income figures for the geographic region. The majority of state-chartered housing agencies in America offer programs to home buyers with annual incomes greater than $100,000.”

Before you apply for a loan or grant, you should also figure out how much assistance you need. If you need help with your down payment and closing costs, you may need to apply to multiple programs and grants or find one program that covers both costs.

The bottom line

It’s getting harder for first-time buyers to save up for a down payment because of rising health-care costs and student loan debt. However, first-time buyer programs like FHA loans put the dream of owning a home within reach.

Jessica Walrack
Jessica Walrack
Contributing Writer

Jessica Walrack is a personal finance writer at SuperMoney, Interest.com, The Simple Dollar, and PersonalLoans.org. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and somewhat fun.

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