A Guide To First-Time Home Buyer Programs, Loans And Grants

There’s a lot to think about when buying a house – and it’s normal to have questions, especially if it’s your first time. You might be wondering about the best way to get down payment assistance or additional help with your closing costs.

Here, we’ll cover some of the most advantageous grants, home loans and programs for first-time home buyers so you know what options are available.

First-time home buyer costs can seem overwhelming. Luckily, there are several loan programs and grants that can assist with your down payment and closing costs, including charitable and government-sponsored programs. Local and federal tax credits can lessen these costs, and educational programs can offer help at every step.

Let’s take a look at some of the most popular first-time home buyer loans and grants.

Government-Backed Home Loans

A government loan, or a mortgage loan backed by the federal government, can also help qualified first-time home buyers purchase a house with no down payment. We’ll cover these types of loans in more detail later on in the article.

Down Payment Assistance (DPA)

A down payment is a large initial expense that’s a percentage of the home’s purchase price. A down payment is required for most types of mortgage loans. Fortunately, many participating lenders accept down payment assistance (DPA), which can help you cover the upfront costs of a down payment.

Down payment assistance programs are typically grants or low to no-interest loans, and many are exclusive to first-time home buyers. The specific assistance programs you qualify for can impact how you can use your funds and whether you’ll need to pay them back.

Down Payment Assistance Loans

Not sure you can cover a down payment on your own? You may also be eligible for down payment assistance programs through a few specific types of loans to reduce the amount you have to put down when buying a house.

A few options include second mortgages, deferred payment loans and forgiven loans. Loans structured as a second mortgage must be paid off at the same time as your main mortgage. Deferred payment loans don’t require monthly payments, and instead must be paid in full when you move, sell, refinance or pay off your main mortgage.

Loans can also be forgiven over a set number of years. However, the loan will need to be repaid when you move, sell, refinance or pay off your primary mortgage if you move before that set number of years expires. Otherwise, you’ll violate the terms of the loan forgiveness.

Down Payment Assistance Grants

You may be able to get DPA through grants, which don’t have to be repaid. Program eligibility requirements for loans and grants may vary, so it’s best to check with your local or state government for details on any first-time buyer down payment assistance programs.

Tax Deductions

You can save money on your taxes through various tax deductions. Federal and state deductions can lower your taxable household income.

For example, you can deduct the cost of mortgage interest paid on a primary residence and one second home from your federal taxes on the first $750,000 of your mortgage loan ($375,000 if married filing separately). This deduction has currently been extended through the 2023 tax year.

Additional deductions and credits, like mortgage credit certificates (MCCs), may also be available through your state or local government.

Closing Cost Assistance

Like down payment assistance, there are government-sponsored and private programs that can help you pay closing costs. Closing costs are additional fees you pay at the end of the mortgage process. Closing costs are typically around 3% – 6% of the total loan amount. Like down payment assistance, closing cost assistance can come through a grant or loan.

You can also look to your seller for help with closing costs through seller concessions. The seller may be able to help with attorney fees, real estate tax services and title insurance. They can also help pay for mortgage points upfront to lower your interest rate and contribute to property taxes.

Home Buyer Education Programs

You can take advantage of online educational programs and resources if you aren’t sure how to start your home search. A good first-time home buying class can be free or low-priced, and can teach you about loan options, the buying process and how to apply for a mortgage. Browse real estate courses online and look for ones aimed at first-time home buyers. It is worth nothing that some educational programs may require specific courses.

Not sure where to start? Check out these tips for first-time home buyers.

You can take advantage of federal, state and local government programs when you buy a home. Federal programs are open to anyone who’s a citizen or legal resident of the U.S. Though not everyone qualifies for every program, you don’t need to live in a specific state to get federal assistance. Here are some of the most popular federal programs for first-time home buyers:

Government-Backed Home Loans

Government-backed mortgages can allow you to get a home with a low down payment or poor credit. The government insures government-backed loans, meaning they pose less of a risk to a mortgage lender.

This also means that lenders can offer borrowers lower interest rates. There are currently three government-backed loan options:

• FHA loans: FHA loans are backed by the Federal Housing Administration (FHA). Eligible home buyers who have a 580 credit score can take out an FHA loan with a 3.5% down payment.
• VA loans: VA loans provide affordable housing options to qualified veterans, service members and surviving spouses courtesy of the Department of Veterans Affairs (VA). VA loans don’t require a down payment and have flexible credit score requirements for borrowers.
• USDA loans: S. Department of Agriculture (USDA) loans are designed for eligible home buyers in certain rural areas of the U.S. Some USDA loans don’t require a down payment on the home purchase.

At this time, Rocket Mortgage^® does not offer USDA loans.

Conventional 97 Mortgage Loan

A conventional 97 mortgage is a type of conventional loan that helps first-time home buyers finance a single-family home with a low down payment. A conventional 97 loan lets eligible home buyers borrow up to 97% of the home’s value with a down payment as low as 3%.

To qualify, at least one borrower must be a first-time home buyer. You’ll need a minimum credit score of 620 and you’re also required to pay private mortgage insurance (PMI). A conventional 97 loan doesn’t have income limits.

Good Neighbor Next Door

Are you a teacher, emergency medical technician, firefighter or law enforcement officer? You can take advantage of the Good Neighbor Next Door program sponsored by the U.S. Department of Housing and Urban Development (HUD).

The Good Neighbor Next Door program offers a generous 50% off select HUD properties. The properties available are foreclosures and are very affordable, even without the discount. You can view a list of available properties on the HUD website.

HomePath^® Ready Buyer™ Program

Government-sponsored mortgage financing enterprise Fannie Mae offers first-time home buyers the chance to buy a foreclosed property for as little as 3% down with their HomePath program. You can even apply for up to 3% of your closing costs back through the program as well.

Fannie Mae homes sell in as-is condition, so you may have to repair a few things before your new home is move-in ready. However, closing cost assistance can help make it possible to cover these expenses.

The HomePath^® Ready Buyer program is only available to first-time buyers who want to live full-time in a house that they’re looking to purchase. You'll need to take and pass Fannie’s HomeView Homeownership Education course before you close on the house.

Most government home buying assistance comes through state and local programs. Individual programs vary depending on your location. You can view a complete list of state-specific buying resources on the HUD program page.

You might qualify for charitable or nonprofit assistance if you have low to moderate income. Charities and nonprofits are non-government organizations that can offer you educational and financial resources when you buy a home.

Nonprofits usually have income limits and requirements that dictate the type of home buyer who can receive assistance.

Habitat For Humanity

One of the most well-known housing nonprofits is Habitat for Humanity, an international organization that offers “simple, decent and affordable” housing for low-income families. Volunteers build homes for those in need, and Habitat for Humanity makes no profit on the home after you close. This makes their homes much more affordable than local options.

Neighborhood Assistance Corporation Of America (NACA)

The Neighborhood Assistance Corporation of America (NACA) is another nationwide nonprofit that can help you buy a home. NACA offers “financially unstable” households mortgage counseling and education. NACA’s team members also help low-income families find lenders to work with them.

NACA loans don’t require a down payment, closing costs or a minimum credit score to qualify. This can give potential home buyers a more personalized look at potential paths toward homeownership.

Like government programs, many charities and nonprofits are region-specific. HUD keeps a running list of approved nonprofits available in every state and county. You can learn more about local housing programs available to you by visiting HUD’s website.

Some employers have housing incentives in place to help employees cover down payments and closing costs. Your employer may offer a grant or loan that’s forgivable over time, and your labor union might also offer closing cost assistance.

Any available employer-sponsored programs depend on your specific employer. Not every employer offers housing or closing assistance, and employer partnership programs are usually joint efforts between state governments and employers.

Set up a meeting with your manager or HR representative and ask if your workplace offers any kind of down payment or closing cost assistance.

If you’re looking into buying property as a student, keep in mind that your school loans may make getting a mortgage a bit more difficult. However, the same first-time buyer programs should apply if you’re looking to buy a house.

Mortgage Options For Student Borrowers

FHA and VA loans, for example, are great options for current students or recent graduates who want to balance their student loan repayments with mortgage payments. Flexible debt-to-income ratio (DTI) requirements can make it easier to qualify for a mortgage with a student loan balance.

A low minimum down payment can also make the upfront costs of homeownership more manageable for students who want to move out of their parents’ house but haven’t had enough time to stockpile their savings.

Some states also provide first-time homeowner assistance specifically for student loan borrowers. Home buyers who have a qualifying amount of student loans or have graduated recently could qualify for programs that reduce their mortgage rate, provide down payment assistance or offer specialty loans.

Check your state website or consult a real estate agent to see what options are available to you.

Let’s take a moment to answer a couple of your biggest questions.

What is a first-time home buyer?

You’re considered a first-time home buyer if you haven’t had any form of ownership in any home in the last 3 years. This means that, even if you have owned a home at some point in the past, you may still be eligible to participate in some first-time home buyer programs, provided it has been at least 3 years since you’ve owned a home.

What are the benefits of first-time home buyer grants, programs and loans?

First-time home buyer programs provide home buyers with affordable ways to finance their home purchase. Some programs allow eligible buyers to buy a house with little to no money down, limited closing costs and more flexible credit score requirements. Other programs offer state and federal tax credits to qualified buyers.

Who qualifies for first-time home buyer loan programs?

Whether you qualify for a first-time home buyer program or loan depends on the specific eligibility requirements established by the mortgage lender, agency, employer or other financial institution.

In some cases, you’ll have to be within certain income limits to qualify for the loans and programs that provide assistance to moderate to low-income borrowers.

Check your credit score, DTI and other qualifying factors before applying for a specific first-time home buyer program, grant or mortgage.

First-time home buyers have access to many grants, loans and financial help that can make buying a home easier. First-time buying assistance can include help with down payments and closing costs, tax credits or education. You might be able to get help from your local, state or federal government if you meet certain income standards.

Charities, nonprofits and employer programs are also available to eligible buyers. These programs vary by state, but you can easily find programs you qualify for through HUD’s website.

Ready to explore your options? Start your mortgage application today.