First Time Home Buyer Programs

First Time Home Buyer Programs

If you are a first time home buyer, there are various mortgage and assistance programs to help you purchase your first home. This holds true whether you have a small down payment or even low income. There are many first time home buyer programs purchase and finance your first home and own a piece of the American dream.

What are First Time Home Buyer Programs?

First time home buyer programs are mortgage programs or down payment assistance programs which are designed to help people to purchase their first home.

The term “first time home buyer program” is unfortunately a marketing term that was created years ago by realtors and lenders to attract new business. The reality is most of the programs are available to anyone who wishes to purchase a primary residence….not just first time home buyers.

Here are the two areas where first time home buyers may find help in purchasing a home:

1. First Time Home Buyer Down Payment Assistance 

There are various down payment assistance programs available in your local community or at the state level. In most instances, you need to be a first time home buyer to qualify for the assistance. Here are some other things you need to know:

    • The down payment assistance may or may not have to be repaid
    • You may be required to stay in the home for a specific period of time
    • You may be required to take a course to qualify for the program
    • There may be a minimum credit score requirement
    • There may be an income limit. Meaning, if you make too much then you may not qualify

Some lenders also offer down payment assistance to home buyers who are struggling to come up with the down payment needed to purchase a home. You will likely need credit scores over 620 and the down payment may need to be repaid over time.

Read our article about down payment assistance to learn more.

2. Mortgages for First Time Home Buyers

There are no first time home buyer specific mortgage programs, but there are mortgages that are best suited for first time home buyers.

For example, FHA loans have traditionally been the program that most first time home buyers use to purchase their first home, but they are available to anyone and you do not have to be a first time home buyer. The same holds true for VA, USDA and conventional loans which we will review in this article.

First Time Home Buyer Programs for 2021

The following are mortgage programs that first-time home buyers can take advantage of. These will either have a low down payment or will have more flexible credit and income requirements.

FHA Loans – FHA loans require only a 3.5% down payment and allow for a debt to income ratio of at least 55%. This means you can qualify for a higher purchase price than you would with a conventional loan. Here are the basic features and requirements:

  • Down payment of only 3.5%
  • Credit scores as low as 500
  • Debt to income ratios over 55%
  • Multi family homes permitted
  • Mortgage insurance (PMI) is required
  • Property must be your primary residence

You can our article about the FHA loan requirements to learn more about what it will take to qualify.

USDA Loans – USDA loans are for the purchasing homes in rural areas and the largest benefit is they require no down payment. Here are the basic features and requirements:

  • No down payment required
  • The home must be located in a rural area as defined by the USDA
  • No minimum credit score required
  • No PMI
  • Property cannot be a working farm or income producing property

You can use this USDA property lookup tool to determine whether the home you are interested in is eligible for the USDA program.  Although there is no specific credit score requirement, lenders will often impose their own minimum.

VA Loans – VA loans are for veterans, active military, or the spouse of a veteran. In most instances, this program makes the most sense for veterans due to the zero down payment requirement. Here are the basic features and requirements:

  • No down payment required
  • No minimum credit score required
  • No PMI
  • Home must be your primary residence
  • There is a VA funding fee added as part of the closing costs
  • There is no specific income requirement

Although the VA guidelines leave the credit score and income requirements open ended, most lenders have very specific requirements in these areas. To learn more, read our article that will help you to compare FHA to VA loans.

Conventional Loans Conventional loans are the most popular mortgage program in the US followed by FHA loans. This is the program that most home buyers choose but it is not always best for first time home buyers with poor credit or little to no down payment.  Here are the basic features and requirements:

  • Down payment as little as 5%
  • Maximum debt to income ratio of 43%
  • PMI needed for down payments less than 20%
  • Home does not have to be a primary residence

If you are trying to determine whether a conventional loan is the way to go, then read our article which compares FHA vs conventional loans.

We mentioned earlier that although these programs are suited for first time home buyers, they are available to anyone even if you owned a home in the past.

First Time Home Buyer Loan Comparison Chart

Loan Program Minimum Credit Score Minimum Down Payment Who it is for
FHA 500 10% low down payment or poor credit borrowers
USDA no minimum 0% low down payment borrowers in rural areas
VA no minimum 0% veterans with no down payment and/or poor credit
Conventional 620 5% borrowers with good credit and income

First Time Home Buyer Grants

First time home buyer grants are typically offered by agencies in your community, county or your state. The grants are not something your lender can help you with. Once you have been approved for the grant, you will then bring that documentation to your lender so they can see the source of your down payment.

  • Here are some features or requirements that are typical for first time home buyer grants:
  • You must be a first time home buyer or have not owned a home for the past three years
  • You must live in the home for a specified period of time
  • You will likely need to attend some type of home buyer education program
  • There may be minimum credit score requirements
  • There may be employment requirements

Two of the biggest obstacles to being approved for a first time home buyer grant are low credit scores and inconsistent employment. Focus on these two areas to give yourself the best chance to be approved for a grant.

First Time Home Buyer with Bad Credit

First time home buyers with bad credit are likely going to have an FHA loan as their only option. FHA loans permit credit scores as low as 500 with a down payment of 10%. However, it is not just about the credit score. There may be items on your credit report that will have to be removed before your lender will approve your loan.

First Time Home Buyer with a Bankruptcy

If you have a recent chapter 7 bankruptcy, you will need to wait until the two year mark after your discharge before applying for an FHA loan. Conventional loans have a longer waiting period.

If you have a recent chapter 13 bankruptcy, you can get a mortgage after you have made at least 12 on time bankruptcy payments

Frequently Asked First Time Home Buyer Program Questions

Is there help to cover closing costs?

First time home buyers are expected to pay for their closing costs. However, in some instances you can roll your closing costs into the loan. With FHA loans for example, sellers are permitted to cover your closing costs up to 6% of the purchase price. You can also get a gift from a relative to help with your closing costs.

How do I determine how much I can afford?

The amount of home you can afford as a first time home buyer will be based upon your income, any debt on your credit report, plus the proposed mortgage payment.

We recommend you try our home affordability calculator to see how much you can afford to buy. Then, we can help you to get pre-approved.

How can I get pre-approved for a first time home buyer program?

The only way to get pre-approved for a first time home buyer loan is to speak to one of our helpful lenders. All you will need is for them to evaluate your credit, a recent pay stub, and a recent bank statement. Read our article on how to get pre-approved or simply complete this pre approval form.

What if my co-borrower is not a first time home buyer?

If you have a co-borrower, he or she does not have to be a first time home buyer. You can still get approved as a first time home buyer even if your co-borrower owns a home now.

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