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First-time homebuyer loans and programs

How to qualify as a first-time homebuyer

Profile picture of Jessica Render
by Jessica Render ConsumerAffairs Research Team

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Buying your first home is an exciting milestone, but as with any new experience, it can also be a bit overwhelming. The good news is as a first-time homebuyer you have access to special programs, loans and grants to help make your homeowner dreams come true. And you may qualify for these options even if you’ve owned a home before.

First-time homebuyer loan programs

First-time homebuyers qualify for loans, grants and other special assistance programs not afforded to other homebuyers. They are also eligible for many attractive programs available to a wider range of homebuyers. As a first-time buyer, it’s important to explore all your options to ensure you’re getting the best deal possible.

FHA loan

An FHA loan is a loan insured but not funded by the Federal Housing Administration and is a popular option among first-time buyers, especially younger buyers or those who don’t have large savings prepared for a down payment. With the FHA loan program, buyers can get a home loan with as little as 3.5% down. By insuring the loan, the FHA makes mortgage lenders more confident in providing funds for the borrower.

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 loans are not exclusive to first-time buyers; they’re a great option for anyone who qualifies.

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 live on the property as a primary residence for at least 36 months.

Fannie Mae’s HomePath Ready Buyer program

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.

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 Direct Loan

Offered through the VA, the Native American Direct Loan program helps veterans who are Native American or who have Native American spouses 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.

Other Native American programs

For nonveteran Native Americans, there are other options. Section 184 guarantees loans made to Native Americans, 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 Dollar Homes

The Department of Housing and Urban Development’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 first-time homebuyer programs and grants

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.

Conventional home loans

There's no rule that says a first-time buyer can't get a conventional home loan. If you have the savings set aside for the typical 20% down payment, you'll be eligible for a conventional mortgage and have your pick of lenders without having to worry about private mortgage insurance. That said, if you’re a first-time buyer, it’s still worth seeing what money-saving programs and grants are available before pulling the trigger on a conventional loan.

First-time homebuyer benefits

Qualifying as a first-time buyer helps save you money in the short and long term. Special programs sponsored at both federal and local levels are aimed at making the homebuying process possible for lower-income individuals and special populations.

First-time homebuyer perks include:

  • Low or no down payments
  • Federally backed loans
  • Federal grants through HUD
  • Local and state grant programs
  • Help with closing costs
  • Down payment assistance
  • Rebates
  • No penalty for early IRA withdrawal (up to $10,000)

First-time homebuyer qualifications: Who qualifies as a first-time homebuyer?

First-time homebuyer requirements aren’t as rigid as they may seem. In fact, even past homeowners may be able to qualify if they haven’t owned a home recently.

An individual who meets any of the following criteria qualifies as a first-time homebuyer, according to the Department of Housing and Urban Development:

  • Individuals and married couples who have not owned a home in the past three years
  • Single parents who have only owned a home with a former spouse
  • Displaced homemakers who have only owned with a spouse
  • Individuals who have only owned a mobile home
  • Individuals who have owned property not in compliance with building codes and cannot bring the structure up to code for less than the cost of building a permanent structure

Is there a first-time homebuyer income limit?

Some programs limit eligibility to those with low to moderate income. For example, to be eligible for the guaranteed USDA loan, your household income cannot exceed 115% of the median income of the local area. Fannie Mae loans are also designed for low- to moderate-income candidates. State and local programs vary.

Tips for buying a home

As you go through the process of buying your first home, there are many things to consider. The key to any major purchase is educating yourself and making an informed decision. We're here to help you make sense of all of your to-dos, starting with the tips below.

  1. Get your finances in order. To start, assess your savings and assets and check your credit score. These are among the first things lenders will examine when evaluating your eligibility for a home loan.
  2. Find out how much house you can afford. Don’t forget to factor in the cost of insurance, taxes and interest. Once you have a number in mind, shopping for a home will be much easier.
  3. Consider the type of mortgage you want. Select from the list above or look into other options available. Once you know the type of home loan you want, it will be easier to narrow down potential lenders.
  4. Select a lender. Don’t be afraid to shop around to get the best rate. If you belong to a credit union or are a long-standing member of a bank in your community, don’t forget about them during your search.
  5. Get preapproved. Once you have a lender selected, go through the process of getting preapproved. A preapproval letter will show sellers and real estate agents that you’re a serious buyer who has the means to purchase a home and may make your offer more attractive.
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Profile picture of Jessica Render
by Jessica Render ConsumerAffairs Research Team

As a member of the ConsumerAffairs research team, Jessica Render is dedicated to providing well-researched, valuable content designed to help consumers make informed purchase decisions they can feel confident making. She holds a degree in journalism from Oral Roberts University.