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According to the National Association of Realtors Confidence Index study, only 28% of first-time homebuyers have invested 20% or more in 2021. While this number may seem low, it makes more sense when you consider that Americans are dealing with devastating inflation and high levels of personal debt.

In addition, many buyers benefit from programs that help first time homebuyers get into the house, often with a down payment below 20%. These programs are especially valuable when the market is competitive.

Reliable makes it easy explore mortgage options and compare rates from multiple lenders.

What are First Time Home Buyer Programs?

First-time homebuyer programs are usually government-sponsored and help people buy their first home. The federal government operates several programs, but state and local governments also oversee first-time buyer assistance programs.

Although the features of the program vary by state, they usually offer low interest rates, help with down paymentand more flexible eligibility requirements.


Who is eligible for First Time Home Buyer Programs?

Specific eligibility criteria may vary by program, but eligibility requirements typically include the following:

  • First time homebuyer Programs generally require you to be a first time homebuyer, which also includes homebuyers who have not owned a home in the past three years.
  • Fair credit history Programs for first-time homebuyers do not usually require a perfect credit history. You may qualify for some programs with a credit score below 600. In contrast, you generally need a minimum credit score of at least 620 to qualify for a regular loan.
  • Income within the limit — Some local programs may limit their assistance to home buyers below a certain household income limit, which may be based on local median income. This number can vary greatly depending on where you live. For example, California, Hawaii, and New York may have higher income limits than states with a lower cost of living.
  • House within purchase – As with income caps, some homebuyer assistance programs will only cover homes below a specified purchase price or a certain percentage of the list price.
  • Lower debt-to-income ratio (DTI) − Some programs may view your debt to income ratio, which measures how much of your total monthly income goes towards paying off debt. Most lenders are looking for a ratio of approximately 36%, but some may accept borrowers with a DTI ratio of up to 50%.

Types of Home Buyer Programs for the First Time

Various programs help buyers with various aspects of the home buying process. To find homebuyer assistance programs in your area, check out the following helpful resources:

Government secured loans

One of the most common ways to get help buying a first home is to apply for a government-supported mortgage through the Federal Housing Administration (FHA), the United States Department of Agriculture (USDA), or the Department of Veterans Affairs (VA).

These agencies do not create loans; approved mortgage lenders offer these specialized loans, and the government insures them to reduce the lender’s risk. Here’s how lenders can fund mortgages with low interest rates. closing costsand other benefits that help buyers purchase a home.

Here is a brief overview of what each program offers to first-time homebuyers:

  • FHA loans FHA loans allow you to qualify for a mortgage loan with a minimum credit score of 580 and as little as 3.5% down. You may be eligible with a credit score of just 500, but you will have to deposit 10% down.
  • VA loans – VA loans have lower interest rates than other types of home loans, and qualified military personnel and veterans can get a loan with no down payment. The Veterans Administration offers these loans and VA has no minimum credit rating requirements. But lenders can set their own minimums.
  • USDA loans – USDA loans may also be financed without a down payment for certain rural homes in certain areas of the USDA through the Rural Development Department’s Single-Family Housing Guaranteed Loan Program. The USDA does not set minimum credit rating requirements for these loans, but lenders may set minimums.


Down payment assistance programs

One way to help with a down payment is a down payment loan, which is the second mortgage you take out with your first home mortgage.

These second mortgages have low interest rates and are designed to help you with your down payment and closing costs. Down payment loans usually come in one of two forms:

  • Loans with deferred payment — You don’t have to pay off these interest-free loans until you sell or refinance your first mortgage.
  • Forgivable loans – As the name suggests, these loans are forgiven if you continue to make mortgage payments and stay in the home for a certain period, which depends on the program.

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You may qualify for a subsidy to help you cover your down payment. Requirements vary by provider, but this assistance is often given to low or moderate income buyers who do not earn at least 80% of the median income in their area.

For example, you may consider applying for down payment assistance through National Home Buyers Fund. You may be eligible for down payment assistance of up to 5% of the mortgage loan amount for down payment and closing costs.

The good news is that you can apply for more than one grant, so it’s wise to apply for any grant you may be eligible for. Contact your local or state government for information about first-time buyer assistance programs.

Assistance in closing

Most new buyer programs offer a helping hand to cover your closing costs in addition to a lower down payment.

For example, Fannie Mae HomePath Ready Buyer Program provides assistance in closing expenses up to 3%. You can get help in the form of a grant, a forgiveness loan, or a low interest loan, but the program only applies to Fannie Mae property that has been foreclosed.

State programs

While many customer assistance programs are available from national sources, other programs are offered in individual states. You can find a wide range of programs with different features depending on your state. View extensive list government home buying resources from HUD.


Difficulties in obtaining a mortgage loan for first-time homebuyers

The main purpose of these homebuyer programs is to give newcomers an edge as they face many challenges as new homebuyers, such as:

  • May have a small credit history – Conventional mortgages usually require a minimum credit score in the 620 to 650 range, which can be difficult if you have few or no records of loan payments. In contrast, government-backed loans can let you into a home with a credit score of just 500.
  • May have other debts Generally, the higher your debt-to-income ratio, the more difficult it will be for you to qualify for a mortgage. First-time homebuyer programs often have more flexible eligibility criteria to help buyers.
  • May have a lower income if he is just starting his professional path – Lenders generally require your monthly mortgage and housing expenses to be 28% or less of your gross monthly income. Many loan programs, including USDA and HomeReady loans, can help low-income buyers purchase a home.
  • May not have a large down payment – Many existing homeowners have accumulated equity in their homes that they can use as a down payment on their next property purchase. First-time homebuyers don’t have that luxury, and saving on a down payment is one of the toughest hurdles first-time homebuyers face.
  • May lack knowledge about buying a home – A lot of first time homebuyer programs and loans may require you to complete a homebuyer training course. This can be helpful to you if you’re not familiar with the home buying process, and many of them include more information about working with real estate agents, choosing an affordable mortgage, and budgeting for the cost of owning a property.

To explore mortgage options, visit Credible to compare prices and creditors.