Buying your first home isn’t easy. But there are plenty of first-time homebuyer grants and assistance programs that can give you a hand.
Olivia Bernard, a 24-year-old nurse in Atlanta, purchased her first home with the help of both a county grant and a grant for nurses. The grants she received helped her save thousands of dollars on the down payment and let her draw less from her personal savings, she previously told NextAdvisor.
If you meet certain qualifications, you may be eligible for down payment assistance programs, loans, grants, or other services. These programs typically target a specific area — such as your state, county, or municipality — and may even allow for buyers who aren’t entirely new to homeownership. Usually, they come with income or asset limits, location restrictions, or credit score requirements.
Here’s what to know about how to qualify for these programs, and how to find one in your state.
Requirements for First Time Homebuyer Assistance
Those who meet the following conditions qualify as first-time homebuyers, according to the U.S. Department of Housing and Urban Development (HUD):
- An individual with no ownership in a primary residence for exactly three years prior to the date of purchase of the new property, or someone with a spouse who meets this criterion
- An individual who only owned with a former spouse during marriage, but is now a single parent.
- A person who had only owned with a former spouse and is now considered a displaced homemaker.
- A person who has only owned nonpermanently fixed foundation residences (based on applicable regulations).
- An individual who has only owned a property that could not meet state, local, or model building codes. The property in question also must be deemed unable to be brought into compliance for less than the cost of constructing a permanent structure.
There are also homeownership assistance programs with qualification requirements that differ from some of the government programs’ standards. For example, nonprofit programs are available for qualified homebuyers in certain public service jobs. Below, we’ve outlined the most common types of financial aid programs that first-time homebuyers should know about. We also recommend checking with your state and local housing departments, HUD-approved housing counseling agencies, and your real estate agent or mortgage lender to see what’s available in your area.
First-Time Homebuyer Programs by State
Your state, county, and city should be the first places to look for first-time homebuyers’ assistance. State and local governments often have funds dedicated to down payments or closing costs, either in the form of grants that don’t need to be paid back or low-interest loans where payment is deferred for a number of years.
Many programs have income restrictions and are intended for people with low to moderate incomes purchasing a primary residence. Each state program is different. They offer a variety of competitive mortgage rates, down payment assistance, closing cost assistance, or tax credits. Each state has its own loan qualification guidelines. Check your state program for more details.
First-Time Homebuyer Programs by State
Federal First-Time Homebuyer Programs
This Fannie Mae program offers first-time homebuyers up to 3% closing cost assistance on eligible homes (foreclosed Fannie Mae properties). You must take a required online homeownership education course before submitting an initial offer.
Good Neighbor Next Door
Intended for teachers, firefighters, emergency medical technicians, and law enforcement, this HUD program offers a 50% discount on the list price of eligible homes, as long as you live on the property as your sole residence for 36 months.
Assistance by Career or Industry
Depending on your profession, you may be eligible for private and public programs that help you with your down payment. For example, Nurse Next Door and Teacher Next Door offer down payment help and grants to nurses, teachers, law enforcement officers, firefighters, military, and government employees.
Federal Loans to Help Purchase a Home
There are a number of government-backed loans intended for first-time buyers and low-income families, including VA loans, FHA loans, Native American Direct Loans (a type of VA loan), or USDA loans. Here’s what you need to know about loans backed by a government agency.
Insured by the Federal Housing Administration, an FHA loan is a mortgage issued by an FHA-approved lender intended for borrowers with low to moderate income. An FHA loan allows for a small down payment (as low as 3.5%) and has lower minimum credit score requirements (580 or above) than most conventional loans.
If your credit score ranges between 500 and 579, you may still be able to get an FHA loan with a 10% down payment. Keep in mind that these credit score requirements are the baseline for FHA loans. Many mortgage lenders have more stringent standards and may require a credit score of 620+ to qualify for an FHA loan.
The downside is you’ll have to pay mortgage insurance on FHA loans because your down payment is less than 20% of the home value. This means an additional monthly cost on top of your mortgage payments.
Those looking to buy in certain rural areas may be eligible for a loan from the U.S. Department of Agriculture. USDA loans are guaranteed loans that offer 100% financing (meaning, no down payment) to borrowers with moderate to low income who purchase homes in eligible areas. This mortgage program offers loans by nationally approved lenders and typically requires a minimum credit score of 640 or higher. If your credit score is lower than 640, you may need to provide additional rent and utility payment history documentation.
Veterans, active service members, and qualified surviving spouses are eligible for loans through the U.S. Department of Veterans Affairs (VA). VA loans are offered by private lenders and may have lower interest rates. Oftentimes, a down payment and mortgage insurance are not required. However, you’ll have to pay an upfront funding fee unless you qualify for a waiver.
If you’re a veteran and you or your spouse are Native American, you can receive a loan to purchase, build, or improve a home on federal trust land through the VA’s Native American Direct Loan. A NADL loan requires no money down or mortgage insurance and has reduced closing costs.
Fannie Mae and Freddie Mac loans
Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are government-sponsored enterprises that buy loans, package them into mortgage-backed securities, and use the sale of the investment to offer lower interest rates for more Americans. A loan from either requires a minimum 3% down payment, a minimum 620 credit score (for some banks, it may be higher), and a strong credit history. These are typically referred to as conventional loans.
Down Payment Assistance Programs
Saving up for a down payment can take years and is one of the biggest hurdles to homeownership, according to a National Association of Realtors survey. You can speed up your homebuying timeline by taking advantage of a down payment assistance program (DPA). These programs offer grants, low-to-no-interest loans, deferred payment loans (a type of second mortgage), or forgivable loans.
Not all DPAs are accepted by every lender. If you’re eligible for a DPA program, then you’ll want to work with one of its participating lenders. In order to qualify for assistance, you may need to meet certain criteria, such as income limits or first-time homebuyer status (not having owned a home within the last three years).
Nearly all DPAs are local or regional. You can find programs with a quick Google search, but the best ways to see what’s available in your area are to:
- Talk with a local realtor
- Reach out to a local housing counselor
- Ask your lender
- Contact your state or local housing authority
If you can’t find or qualify for financial aid, you may want to opt for a loan backed by the federal government, which usually has a lower down payment requirement. An FHA loan may only require 3.5% down. A VA loan requires as little as 0% down — just watch out for the funding fee, which can top 3% of the loan balance in some circumstances.
Is There Closing Cost Assistance?
Whenever you take out a home loan, there are a variety of upfront fees known as closing costs. Closing costs can range from 3% to 6% of your mortgage balance. The average home price is over $400,000, so paying $10,000 or more in closing costs wouldn’t be unreasonable. Thankfully, there are first-time homebuyer assistance programs to help with this upfront housing expense.
These programs function similarly to DPAs and often a single program offers assistance for both closing costs and the down payment. This financial assistance typically comes in similar forms to down payment aid, including grants and deferred payment loans. You’ll usually need to be a first-time homebuyer, typically defined as not having owned a home in the last three years, to be eligible. In some cases, the three-year requirement could be waived if you have served in the military or are divorced.
While the majority of closing cost assistance is managed at the state or local level, some banks, credit unions, or brokers may also offer no-closing-cost loans. A “no-cost” loan isn’t actually free, you’re just not paying the fees upfront. This is accomplished by either rolling the closing costs into the loan or by accepting a higher interest rate in exchange for lender credits.
What Should I Know as a First-Time Homebuyer?
First-time homebuyers can face additional challenges, especially in today’s housing market where competition for homes can get heated. Sellers often prefer offers tied to conventional loans over the government-backed loan programs favored by first-time homebuyers, such as FHA loans or VA loans.
That doesn’t mean you can’t get an offer accepted with a government-backed loan. “You have to think outside the box, because if 20 offers are exactly the same … what makes yours stand out?” says Shanequa Jones, a Realtor with NB Elite Realty in Houston, Texas. One tactic Jones has used to enhance an offer is to increase your earnest money deposit from 1% to 2% of the purchase price.
However, what works to get your offer accepted in one area or for a specific house may not work for another. Working with a real estate agent that specializes in the neighborhood where you’re looking to buy is a great way to give yourself an advantage. Your agent can help you put together an offer that’s tailored to what sellers are looking for in that particular market.
Should I Buy a Home?
When deciding whether or not to become a homeowner, take a good look at your personal finances. A mortgage lender may be willing to lend you more money than you’ll want to spend on housing. If you have a stable source of income, experts typically recommend spending no more than 28% of your pre-tax monthly income on your housing needs.
As you improve your credit score and increase the size of your down payment, the mortgage rate you can qualify for will drop. This can dramatically decrease the cost of borrowing money to buy a home. If you have an opportunity to take the time to build your credit and savings, then it might make sense to wait to become a homeowner.
Aside from the numbers, purchasing a home largely comes down to your goals and personal circumstances. If it’s the right time in your life to buy a home and you can afford it, then you don’t have to wait until you have a perfect credit score to start your home search. There are mortgages and buyer programs designed to help you make the leap from renting to owning a home.
Should I Wait Until Mortgage Rates Are Lower to Buy a House?
With so much uncertainty surrounding mortgage rates, waiting isn’t a strategy that’s guaranteed to work in your favor. Inflation remains high and the Federal Reserve has signaled its plans for more hikes to short-term interest rates, two factors that could put pressure on mortgage lenders to continue raising rates.
Although your interest rate impacts how much house you can buy, mortgage rates don’t have to drive your decision.“If you can afford to buy right now, then go for it; if not, just wait,” Jones says. Buying a home with an affordable monthly payment is more important than waiting for rates to drop.
Aside from interest rates, you may also want to take home prices into consideration. Experts don’t expect home prices to crash thanks to low inventory and strong demand from buyers. Even if rising rates curb demand, stricter lending standards have made today’s housing market much more stable than the market leading up to the 2008 collapse.
How to Find the Best Mortgage Lender as a First-Time Homebuyer
To find the best mortgage lender for your first home purchase, start by figuring out your budget, deciding what you want in a home, and determining the best type of mortgage loan for your situation. All of these factors can help you make the best choice for which lender to work with. It’s advantageous to work with a lender that has experience dealing with the exact type of loan you want. This is especially true when you’re taking advantage of a government program, such as a VA loan or FHA loan.
Compare offers from a handful of mortgage lenders. This will help you find the best overall deal on your home loan. Interest rates and loan fees aren’t fixed, so you can shop around and negotiate both of these costs. It can also be helpful to contact a variety of types of lenders (banks, credit unions, brokers, etc.). Communicating with a wide range of lenders will get you access to different mortgage programs and an array of loan terms.
Steps for Buying a House with First-Time Homebuyer Assistance
Once you’ve made the decision to become a homeowner, you can start taking steps to make your dream come true. Everyone’s timeline for purchasing a home is different and it’s important to not rush the process.
1. Get Your Finances in Order
It takes money to own a home. The upfront fees and down payment are one thing, but once you’ve moved in, you’re also responsible for maintenance and repairs, property taxes, homeowners insurance, and other house-related costs. Saving up as much money as possible beforehand will help you be prepared for all of the expenses associated with buying and owning a home.
Create a budget to help prioritize setting money aside for closing costs, the down payment, and an emergency fund. Getting your finances in order by paying down debt will boost your credit score, which will improve your chances of getting approved for a mortgage and help you secure a better interest rate.
2. Find Out What Assistance Is Available
There are thousands of homebuyer assistance programs in the U.S. and nearly all of them serve a specific state or locality. Taking advantage of these programs can help you speed up your timeline for a home purchase.
You’ll want to find out which programs are available in the area where you’re looking to buy. A quick Google search is a good place to start, but also talk to the local government housing agency or a HUD-certified housing counselor to ensure you’re not missing any programs.
Once you know what programs are in your area, find out which ones you qualify for. Some homebuyer assistance programs have income limits, only work with specific lenders, or may only be available for certain areas or neighborhoods within a state or city. Most buyer financial aid is targeted to first-time homebuyers, which is usually defined as not having owned a home within the previous three years.
3. Get Preapproved for a Home Loan
Getting preapproved for a mortgage is a vital step to getting an offer accepted. A preapproval letter from a lender is one way to show a seller that you are a qualified buyer.
A preapproval isn’t quite as involved as a full mortgage application, but it will involve verifying all of your financial information with documentation. A lender will also need to pull your credit to establish that there aren’t any negative marks on your credit report that could keep you from a final loan approval.
4. Work with a Local Real Estate Agent
A local licensed real estate agent can help you find the right home for you and craft a winning offer. Find someone that is familiar with the type of home you want to buy and has experience in the neighborhoods you’re considering living in. Having a professional on your team that understands the local market can give you a leg up on the competition, which is vital in today’s competitive real estate market.
5. Get an Offer for a Home Accepted & Close
Depending on the demand for homes in your area, you may not have much time to decide whether or not to put in an offer on a home. In that scenario, you’ll still want to carefully consider the offer price and what buyer protections you include or omit from the contract. For nearly two years, bidding wars for homes have been more common, so you may end up having a number of offers rejected before getting one accepted.
Once your offer is accepted, you’re one step closer to becoming a homeowner. But you’ll still need to go through the closing process, which involves mortgage underwriting, an appraisal, and possibly several inspections. Closing on a home typically takes 30 to 60 days.
Other First-Time Homebuyer Resources
- Are You Ready to Buy a House?
- First-Time Homebuyer’s Guide
- How to Save For a Down Payment for a House
- What to Know About Mortgage Lenders Before You Buy a Home
- How to Get a Mortgage
- 15 Steps on How to Buy a House in 2022
- 10 Things to Do Before You Move Into Your New House
Expert Advice About Today’s Housing Market
- The Best House Hunting Advice You’ll Ever Get, According to the Experts
- First-Time Homebuyers Are Struggling to Get Offers Accepted. Here’s What You Can Do About It
- Why Housing Prices Aren’t Likely to Fall Anytime Soon, and 5 Things Homebuyers Should Focus on Instead
- A Higher Mortgage Rate Can Actually Save You Money With This Underrated Mortgage Loan
- 4 Things I Wish I Knew Before I Bought My First House