First-Time Homebuyer Loans and Programs

What are first-time homebuyer loans and programs?

First-time homebuyer loans and programs are just that: loans and programs designed for those who have never owned their primary residence before (or haven’t owned a home in over three years). The purpose is to make buying a home more accessible by making the buyer’s first mortgage more affordable and easier to obtain.

There are several options for first-time homebuyers that fall under conventional loans or government-backed loans, such as Federal Housing Administrative (FHA) loans. There are also specialty programs, like loans for veterans. The U.S. Department of Housing and Urban Development (HUD) also has first-time homebuying programs for those in rural or suburban areas.

Types of down payment assistance

You can search for down payment assistance programs by state to see what you are eligible for.

There are also options for down payment assistance, since coming up with a down payment can be difficult for first-time homebuyers. If you don’t have a 20% down payment on a conventional loan, you’ll be stuck with private mortgage insurance (PMI). Down payment assistance programs help avoid this added cost.

• Grants: Grants provide money for a down payment or closing costs and usually don’t need to be repaid. They’re commonly offered by state or local housing agencies and often have income or location requirements. As long as you meet the program rules, the funds are yours to keep.
• Forgivable loans: Forgivable loans are assistance loans that are erased over time if you meet program conditions. For example, a loan may be fully forgiven after five years of living in the home. If you move or refinance early, you may have to repay the remaining balance.
• Second mortgages: Second mortgage programs offer a separate loan to help cover the down payment alongside your main mortgage. These loans often have low or deferred interest and may not require payments until you sell or refinance. This structure helps reduce upfront cash needs for first-time buyers.

» MORE: How To Get Down Payment Assistance

Who qualifies as a first-time homebuyer?

You might be surprised at who qualifies as a first-time homebuyer. Even those who have owned a home in the past can qualify.

Many programs define a first-time homebuyer as someone who hasn’t been an owner for three or more years — so there is a good chance you could qualify as a first-time buyer even if you have previously been a homeowner.

“A person needs to be buying the property as their primary residence in order to be considered a first-time homebuyer,” said Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage. “They cannot have had any ownership interest (sole or joint) in a residential property during the three-year period preceding the date of purchase.”

Additionally, Alvarez mentioned that a single parent or displaced homemaker could be the exception to this rule if they have not owned a home outside of joint ownership with a previous spouse.

“In some instances, these programs for first-time homebuyers have income and or geographic limits, so it is important that you fully understand what is being offered,” Alvarez added. “It is always a good idea to speak with a broker who is able to shop the entire market for you rather than someone who is beholden to one specific lender.”

Types of first-time homebuyer loans and programs

Thanks to the special programs sponsored by both the federal government and local governments, the dream of homeownership is becoming more accessible for many individuals, including those who are lower-income, veterans and Native Americans. Below, we break down the programs available in each category.

Federal loan programs

These government-backed programs are available for individuals who don’t qualify for traditional lending.

FHA loan

A Federal Housing Administration (FHA) loan is a government-backed loan available for individuals who don’t qualify for traditional lending. While not the actual lender, the U.S. Department of Housing and Urban Development (HUD), part of the government, will insure a portion of an FHA loan, making you less of a risk in the eyes of the lender and, in turn, making it easier for you to qualify for the loan.

FHA loans are popular among first-time homebuyers, but seasoned homebuyers can also apply for FHA loans. One of the main attractions of FHA loans is the lower down payment option. Qualified borrowers can secure an FHA loan with a down payment as low as 3.5% of the home's purchase price or its appraised value, whichever is less.

» MORE: Pros and Cons of an FHA Loan

USDA loan

USDA loans are loans designed for housing in rural areas. A USDA loan is backed by the U.S. Department of Agriculture. If you wish to live outside of a major metropolitan area, it’s possible your desired property can be classified as “rural,” even if it’s in a suburban area.

VA loan

If you or your spouse is a veteran or active-duty military, you are eligible for a no-down-payment loan via the Department of Veterans Affairs (VA). VA loans are not exclusive to first-time buyers; they’re a great option for anyone who qualifies.

A ConsumerAffairs reviewer from Florida, Thomas, qualified for a VA loan and was very happy with the process. “I am a first-time homebuyer, and all the experiences that friends and family have had with their own homebuying have always been borderline nightmarish, so I didn't know what to expect going into this process. (The lender) made this experience so amazing! Everything was smooth and the team was knowledgeable and efficient. They always had the answers and the best customer service making this process a wonderful experience.”

Energy-efficient mortgage (EEM)

An energy-efficient mortgage provides certain benefits for anyone looking to purchase an energy-efficient home (like one with solar panels) or make energy-saving improvements to a home after purchase. Purchasing a home with an EEM can help you qualify for a larger loan.

Native American programs

Various programs and initiatives in the United States aim to assist Native American first-time homebuyers. These programs are for individuals with Native American heritage or connections. They are designed to address the unique challenges faced by Native American communities in accessing affordable housing and homeownership opportunities. However, they are not available in all states.

Native American Direct Loan

Offered through the VA, the Native American Direct Loan program helps veterans who are Native American or who have Native American spouses to buy, build or improve property on federal trust land. To qualify, you must have a valid VA Certificate of Eligibility and meet certain credit standards.

Section 184 Indian Home Loan Guarantee

For nonveteran Native Americans, there are other options. Section 184 guarantees loans made to Native Americans and Alaska Native families, making it easier to obtain a home loan from a mortgage lender. Buyers are eligible for a low down payment, and homes can be purchased on or off Native lands.

HUD-specific programs

The U.S. Department of Housing and Urban Development (HUD) has first-time buyer programs that offer financial assistance, counseling and education to help first-time homebuyers navigate the homebuying process.

Good Neighbor Next Door

The Good Neighbor Next Door program earmarks certain homes in revitalization areas for eligible candidates, with a discount of 50% off the list price of the home. Candidates include law enforcement, teachers, firefighters and emergency medical technicians who commit to living on the property as a primary residence for at least 36 months.

HUD Dollar Homes

The HUD’s Dollar Homes program is in place to provide homeownership opportunities for low- to moderate-income families. Homes in the program have been acquired by the FHA through foreclosure and remained unsold on the market for at least six months. These are homes with a market value of $25,000 or less and likely need considerable improvements to be made livable. HUD sells these homes for $1 with the hope they're fixed up to revitalize communities.

Home loans for public housing residents

If you currently live in public housing, HUD has a program in place that lets you convert your rent payments into a mortgage payment. You’ll need to contact your local public housing agency to get details on how to qualify.

State and local programs

While there are several attractive federal programs, we’d be remiss if we didn’t mention the legion of state and local grant programs available. Qualifying for a grant can help offset the cost of owning a home and lower your total mortgage payment, making owning a home more affordable month over month.

Fannie Mae’s HomePath Ready Buyer program

Available in all 50 states, Fannie Mae offers closing cost assistance to future homebuyers who complete a homeownership education course. Graduates of the program are eligible for up to 3% closing cost assistance toward the purchase of a HomePath-designated property.

Application process for first-time homebuyers

Applying for a first-time homebuyer loan can feel overwhelming, but breaking it into clear steps makes the process far more manageable. This guide walks you through each phase, from financial prep to closing, with practical tips to help you maximize eligibility and avoid delays.

1. Prepare your finances: Start by reviewing your credit reports from all three bureaus and correcting any errors. Pay down high-interest debt if possible, since your debt-to-income (DTI) ratio plays a major role in loan approval. Begin saving for upfront costs, including a down payment, closing costs and reserves that lenders may require. At this stage, also set a realistic budget for monthly payments, not just the purchase price.
2. Gather key documents: Lenders will ask for proof of income and assets, so collect recent pay stubs, W-2s or tax returns, bank statements and ID. If you’re self-employed or have variable income, expect to provide additional documentation. Having these ready early can significantly speed up preapproval and underwriting.
3. Get preapproved for a mortgage: Contact one or more lenders to request a mortgage preapproval, which shows sellers you’re a serious buyer. During preapproval, the lender reviews your credit, income and debts to estimate how much you can borrow. Preapproval also helps you identify potential issues, such as a high DTI or low credit score, before you make an offer.
4. Research first-time homebuyer programs: Look into federal, state and local programs designed for first-time buyers, including FHA, VA and USDA loans, as well as down payment assistance or grant programs. Pay close attention to eligibility rules related to income limits, home price caps and occupancy requirements. Applying for multiple programs may increase your chances of receiving financial assistance.
5. Shop and compare lenders: Don’t settle for the first offer you receive. Contact several lenders, including banks, credit unions and online lenders, and compare interest rates, fees and program options. Ask specifically about first-time buyer incentives, reduced mortgage insurance or lender credits that could lower your upfront costs.
6. Submit a full loan application: Once you’ve chosen a lender and a program, complete the official mortgage application. This step triggers underwriting, where the lender verifies your information, orders an appraisal and reviews the property. Respond quickly to requests for additional documents to avoid delays.
7. Navigate underwriting and conditional approval: Underwriting may involve follow-up questions or requests for clarification. Provide accurate, timely responses and avoid major financial changes, like opening new credit accounts or changing jobs. Once conditions are satisfied, you’ll receive a clear to close.
8. Review closing disclosures and close on your home: Before closing, review your Closing Disclosure carefully to confirm loan terms, interest rate and final costs. At closing, you’ll sign loan documents, pay any remaining funds due and officially become a homeowner.

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