First-Time Homebuyer Programs: An Easy-to-Read Guide

Who counts as a first-time homebuyer?

Many programs define a first-time buyer as someone who has not owned a home in the past three years, so you may still qualify even if you owned a home long ago. Each program sets its own definition, so ask before you assume you do or do not qualify.

Low down payment loans

You do not need 20% down to buy a home. These common options let you start with much less:

• FHA loans allow as little as 3.5% down with a credit score of 580 or higher, or 10% down with a score from 500 to 579. They have both an upfront and a monthly mortgage insurance cost.
• Conventional loans with 3% down, including Fannie Mae's HomeReady and Freddie Mac's Home Possible, are built for lower- and moderate-income buyers. Income limits (often about 80% of the area's median income) and a homebuyer education course may apply. Another 3% option, sometimes called Conventional 97, may not have an income limit but is generally meant for first-time buyers.
• VA and USDA loans often require no down payment for eligible buyers: veterans and service members for VA, and buyers in eligible rural and some suburban areas for USDA.

Not sure which one fits? Try the loan type guide.

Down payment and closing cost assistance

Every state has a housing finance agency, and many cities and counties run their own programs. Help usually comes in one of these forms:

• Grants that you do not have to repay.
• Forgivable loans, which are forgiven over time if you stay in the home for a set number of years.
• Deferred second loans, which you repay when you sell, refinance, or pay off the main loan, often with no monthly payment.
• Low-interest second loans that come with a monthly payment.

These programs usually come with conditions, such as income and home price limits, a minimum credit score, a homebuyer education class, and a requirement that you live in the home. The funds can often be paired with an FHA or conventional loan, but you generally need a lender that takes part in the program, so ask lenders which assistance programs they work with.

Tax breaks and other help

• Mortgage Credit Certificates (MCCs) are offered by some state and local agencies. They turn part of the mortgage interest you pay each year into a federal tax credit.
• Retirement account withdrawals: some people can take up to $10,000 from an IRA toward a first home without the early withdrawal penalty, though regular income tax may still apply. Ask a tax professional.
• Employer help: some employers offer home-buying assistance or grants.
• Good Neighbor Next Door: a HUD program that offers a large discount on certain HUD-owned homes to teachers, law enforcement officers, firefighters, and emergency medical technicians who meet the requirements.

How to find programs near you

• Search for your state's housing finance agency and look at its homebuyer programs. Also check your city and county.
• Talk to a HUD-approved housing counselor. Counselors can explain programs, review your budget, and often offer help at little or no cost. You can find one through HUD's website.
• Ask at least two or three lenders which first-time buyer and assistance programs they offer, since not every lender takes part in every program.

Questions to ask

• Do I qualify as a first-time buyer under this program?
• Are there income limits or home price limits where I want to buy?
• Do I have to repay the assistance, and when?
• Does the program change my interest rate or mortgage insurance?
• Is a homebuyer education course required, and how long does it take?
• How long will it take to receive the funds, and could it affect my closing date?