Are you a first-time home buyer? If yes, there’s a good chance you’re going to have to use a first-time home buyer loan program to finance the purchase of your first house, condo, or townhome.
Unless you’ve set aside quite a bit of money to buy it for cash.
Below, I have researched and organized a list of first-time home buyer programs to help you get started on your journey to buying your first real estate property.
I initially created this list when I bought my first home back in the year 2000. Since then I’ve maintained it, shared it out with friends, and now it’s a blog article.
You might be wondering which program I used to buy my first home with? I used an FHA loan which only required a 3.5% down payment, plus some closing costs. It will be the first program I share with you on the below list.
Let’s get into it!
Top First-Time Home Buyer Programs List
First Time Home Buyer programs make it easy to buy a home with little money down. They also have more relaxed lending requirements. To exact the exact details of each homebuyer program below, you’ll need to speak with a lender or mortgage broker.
To help you get a start though, review this list.
Federal Housing Authority or FHA
The most well known first time home buyer program is provided by the Federal Housing Authority or FHA.
FHA is the first-time homebuyer program I used for my first home purchase, and I think it’s the best one out there!
Some Highlights of this loan include:
- A minimum credit score above 580 is part of the basic qualifications. But honestly, in the real world, I’d shoot for at least a 620 score with no bad marks on your credit whatsoever.
- You can buy with only 3.5% down. Compare that to the traditional 10 or 20% required for a conventional mortgage.
- A higher income-to-debt ratio is sometimes allowed, beyond the conventional loan limit of 30-40%.
- There are some strict lending requirements relating to the condition and type of property you can buy with an FHA Loan. You can review those requirements here: FHA Loan Requirements
FHA is not the only first-time home buyer option out there. Below are some more programs for you to review.
Freddie Mac and Fannie Mae
Freddie Mac and Fannie Mae are both government sponsored entities that work with small and large lending institutions to loan out money for buying homes. They help facilitate loan programs based on conforming guidelines from the government. The programs typically require a low down payment too. They do not directly lend out money to the borrowers.
To learn more about the differences, check out the following article: Freddie Mac vs. Fannie Mae
USDA Loan
If you’re considering a property in a rural area, a USDA loan just might work for you. It can be used for purchasing, building, or repairing your new home.
VA Loan
The VA loans don’t always require a down payment and are available exclusively to most members of the military. Including all Veterans, National Guard Members, and Reservists.
Good Neighbor Next Door
Good Neighbor Next Door is great if you’re a Teacher, Police Officer, Firefighter, or Emergency Medical Technician (EMT), you may qualify for this homebuying program from HUD. They’ll offer a substantial 50% discount if you buy a qualifying home in the community you serve.
Energy-Efficient Mortgage
Energy-efficient mortgage (EEM) is a great option for borrowing money to purchase or remodel a home (or multiplex) that is energy efficient, you’ll get some really good perks with this mortgage program. The biggest perk is that the loan limits may be exceeded if the extra cost relates to the property being energy efficient.
FHA Section 203(k)
FHA Section 203(k) is for buying a fixer-upper, this program can allow you to finance up to 35k of the repairs right into your first mortgage. Wow, that would really help out with a neighborhood revitalization if everyone did that.
Local Grants and Programs
Your realtor or mortgage broker may know of some local grants or programs that might be available in your city to help purchase a property. Also, you can search on Google for your city name with a keyword relating to “real estate grants” or “home buyer programs”. The local grants and programs are always changing so you never know what you will find.
Private Mortgage Insurance: The Disadvantage Of A First Time Home Buyer Finance Program
Many first-time home buyer programs let you put less than 20 percent down as a down payment and this is what makes them look very favorable.
However, there’s a downside!
Any home purchase with a down payment of less than 20 percent (for the first mortgage) will require something called Private Mortgage Insurance (PMI); Which means you’ll have a higher monthly payment because you’ll need to pay for this insurance.
Here’s more information on what exactly PMI is: What Is Private Mortgage Insurance?
Getting Rid Of Private Mortgage Insurance
Based on my experience of buying and owning several homes already, there is a way to use a second mortgage to finance part of the down payment to eliminate PMI, but you’ll need to work with the lender or a mortgage broker on that strategy.
An example of how this works is the following:
When I bought my last home it was not with a first-time homebuyer program, I used a regular 30-year fixed mortgage and only had to put 10% as the down payment. I then used a second mortgage loan to cover the other 10% which remained.
I now had enough to secure the first mortgage with a 20% downpayment, I did not have to pay PMI. The second mortgage payment was cheaper than the cost of a monthly PMI payment, so I saved hundreds of dollars every month.
I’m not sure however that this strategy would work with a first-time homebuyer program, so make sure you do your research!
Final Thoughts
The idea of saving up an entire 20 percent down payment for a conventional mortgage loan is a far stretch for many people. Especially in California where the home appreciates faster than you can save up the entire 20% down payment up to qualify!
It’s much easier to lock in a payment with a first-time home buyer program, then refinance into a better conventional loan once you have built up some equity.