The U.S. federal government has a reputation for being homebuyer-friendly, and that reputation is well-earned. It guarantees FHA mortgage loans, VA loans and U.S..Department of Agriculture - USDA loans - in rural areas to make it easier for most borrowers to qualify. And it provides housing grants – money that homeowners don’t have to pay back – although not directly to consumers. It gives the funds to state and local governments, which then pass them on to homebuyers.
Some of these grants and other loans and assistance are available to first-time homeowners, but buyers have to meet eligibility requirements to qualify. There are some income restrictions and, yes, you’ll need a somewhat healthy credit score. Grant money is typically applied to closing costs and to your down payment, and loans can be available for these costs as well. Most loans have to be paid back, but the interest rates are typically very low, and some loans don’t have to be repaid until you sell or refinance. Others don’t have to be paid back at all if you live in the residence for a certain number of years.
Who Is a First-Time Homebuyer?
The government has a definitive definition of “first-time” homebuyers, and most cooperating agencies and non-profits adhere to it as well. The definition is rather flexible, however. It doesn’t mean that you’ve never owned a home, but that you haven’t owned one in the last three years. You’d be eligible in June 2021 if you owned a home but sold it in May of 2018 or earlier.
Owning includes not just your primary residence, but investment and rental properties. Owning these can disqualify you as well, regardless of whether you live in them.
Government-Backed Mortgages: FHA Loans
The Federal Housing Administration, or FHA, is probably the most well-known government loan program for mortgages, and it’s not reserved for first-time buyers. The FHA is part of HUD, the U.S. Department of Housing and Urban Development. It doesn’t provide the mortgage itself. It guarantees loans, effectively promising independent lenders that they’ll be paid if the homeowner fails to make monthly mortgage payments and defaults on the mortgage.
Terms for down payments and credit scores are generous with FHA loans, but the lenders can override them and set their own requirements to some extent. These mortgages are generally easier to qualify for nonetheless, and the interest rates are generally good. You can often qualify with a credit score of as low as 500 if you put 10 percent down, or 580 if you put only 3.5 percent down.
Read More: Proving Your Income for FHA
FHA Housing Vouchers
The FHA also provides housing vouchers to first-time homebuyers – money they can use toward purchasing a home. But they must currently be living in public housing or meet low-income requirements to qualify for this assistance. Again, these are granted through state and local agencies, not directly by the FHA, so check with the public housing agency in your area to find out what’s available and the rules there.
You can also reach out to the Public and Indian Housing Customer Service Center at 800-955-2232. The call is toll-free.
The Good Neighbor Next Door Program
The Good Neighbor Next Door program is provided for by HUD, and you don’t have to be a first-time buyer to qualify for it. You do have to be a teacher, firefighter, law enforcement officer or emergency medical technician, however. It will allow you to purchase a HUD home for 50 percent less than its asking price, but here’s a word of warning: HUD homes are foreclosures in revitalization zones. They tend to be very affordable even without 50 percent off the purchase price, but you might have to deal with somewhat extensive repairs, and you must live there for at least 36 months after buying.
Read More: HUD Housing for Teachers
The Fannie Mae First-Time Homebuyers Program
Fannie Mae’s HomePath program will give you up to 3 percent of your closing costs if you’re a first-time buyer. You’ll have to meet a homeownership homebuyer education course requirement by attending the HomePath Ready Buyer course, and you must include the completion certificate with your application. The class is available online. You must also move into the property within 60 days of closing. This program is restricted to HUD foreclosure properties as well.
Fannie Mae and Freddie Mac also provide home loans with kinder-than-usual qualifying requirements. Fannie Mae does so through its HomePath program. Home Possible is Freddie Mac’s program. You can get away with a low down payment of as little as 3 percent with these programs.
Other Programs and Assistance
First-time homebuyer programs don’t begin and end with the federal government. Many states, counties, cities, towns and even specific neighborhoods offer assistance separate and apart from FHA or HUD funding. There are programs with loan options that help with your closing costs, down payment assistance programs or programs that help with both closing and down payments. Plus, you can often take advantage of two or more programs, such as one from the county for closing cost assistance and one from the state for down payment assistance. Double-dipping is usually allowed.
Again, you might not be required to repay these loans until you sell or move out of the home. And loans can be at least partially “forgiven” – you won’t have to pay at least a portion back – if you remain in your new home for a certain number of years.
These programs are available in every state, according to The Mortgage Reports, but there’s no guarantee that they’ll be offered in the exact area where you want to live. Contact the housing authority in the area where you’d like to buy to find out what, if anything, is available there. A real estate agent or your loan officer would most likely be able to point you in the right direction as well. You'll probably have to qualify by proving that your income is below certain limits.
Meeting Program Requirements
No home purchase program is going to simply give you a home, covering 100 percent of the cost, according to HUD. But most of these programs will give you a pretty good break if you qualify. How big of a break can depend on the program, your income, your credit score and the location where you’re thinking of buying. Income limits can vary considerably by state.
You’ll have to be able to qualify for a mortgage, because you can’t use grant money for any other purpose than homebuying. You’re not limited to using a specific lender, but you might have to get pre-approved by a mortgage lender before you can apply for program assistance. And you might have to meet minimum credit score requirements for state and local funding, usually about 640.
All HUD-backed programs also require that you attend a housing counseling class, similar to the Fannie Mae program's course. State programs might charge you a nominal fee for attending. A qualifying household must include at least one adult who’s currently working full-time and has been for at least a year. HUD programs are also limited to U.S. citizens or legal U.S. residents, and FHA loans also require that the home you’re buying must meet certain standards.
Read More: Checklist& FHA Guidelines on Home Inspections
If You Don’t Qualify as a First-Time Buyer
Consider applying for an FHA loan if you don’t qualify as a first-time buyer and don’t want to wait out the three-year clock since you last owned a property. The VA offers a similar loan if you or your spouse are active or retired service members. VA loans are available with no down payment for all qualifying homebuyers, not just those who are purchasing for the first time.
- HUD.gov: Resources for Individuals
- USA.gov: Help Buying a New Home
- American Financing: Government Assistance Programs for First-Time Homebuyers
- Rocket Mortgage: A Guide to First-Time Home Buyer Programs, Loans & Grants
- Bankrate: 10 First-Time Homebuyer Loans and Programs
- The Mortgage Reports: How to Get a First-Time Home Buyer Grant or Loan – 2021 Programs and Rules
- HUD.gov: PIH Customer Service Center
- Federal Deposit Insurance Corporation: HUD Programs – Good Neighbor Next Door
- HomePath.com: Starting the Homebuying Process
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.