First-Time Homebuyer Assistance Programs

The vast majority of millennials believe that buying their first home is out of their reach either because of down payment or income requirements. However, the government has put in place first-time homebuyer assistance programs which can put the dream of owning a home back within their reach. These are among the more popular programs.

FHA Loan

FHA loans, backed by the Federal Housing Administration require just a 3.5% down payment and a credit score of 580 or higher to qualify. If that is still too much to handle out of your own pocket, the FHA will allow the entire down payment to be paid with gifted funds. The gift can be from a family member, a non-profit organization or other eligible source. That is not typically allowed with a conventional loan, so if you can qualify for an FHA loan and you have a source of funds, you can essentially have 100% of your loan financed.

If anyone on the loan holds a job as a teacher, a police officer or some other public servant, the FHA also offers the Good Neighbor Next Door loan which only requires $100 down.

USDA Home Loan

The USDA has been offering zero-down loan options for first-time homebuyers since 1949. Also known as a rural development loan, the USDA home loan targets buyers in rural and some suburban areas. The down payment requirement is very low and the credit requirements are lenient (620 FICO score qualifies). You need to have enough money to cover loan payments but not too much as there are income limitations. If the seller agrees to cover your closing costs, your only cost is a 2% fee, which can be rolled into your loan.

VA Home Loan

If you have at least two years of former military experience, or 90 days if you are still active, you can qualify for a VA home loan with 100% financing. VA loans, which are backed by the Veterans Administration, are among the most competitive in terms of interest rate and closing costs. Unlike USDA, FHA and conventional loans, they don’t require a down payment or mortgage insurance. A credit score between 620 and 640 will qualify you for a VA loan with most lenders. The VA loan is the most competitive of all buyer assistance loans.

Fannie Mae or Freddie Mac

Fannie Mae and Freddie Mac are government-backed agencies that work with lenders to help low- to moderate-income families obtain financing.

Federal Housing Administration 203(k)

If you are willing to put some sweat equity into your home, the FHA will back your loan for the purchase of a fixer upper. Under its 203(k)-rehabilitation program, the FHA will base your loan amount on the value of the home after improvements have been made.

State and Local Grants and Programs

Every state offers its own first-time buyer assistance programs. Program features and eligibility can vary widely. Check your state, county or city’s website for information on programs available in your area. You can also get some information on first-buyer assistance programs from your real estate agent or a local HUD-approved counseling agency.

Don’t Forget Closing Costs

While these 100% financing or low-down payment programs can save you thousands of dollars in upfront costs, you need to keep in mind that loans still come with other costs. When a mortgage loan is processed there are a number of costs incurred by the lender, including processing fees, title costs, origination fees and property appraisal, which can total $2000 to $5,000 or more. In some housing markets, the seller might offer a closing cost credit as a buying incentive. It’s worth it to at least ask.