Mortgages

First-time homebuyer assistance programs

By
Social Links for Anna Baluch ,
reviewed by
Mike Schmidt,
edited by
Chris Jennings
Updated June 26, 2023, 8:14 p.m. ET
First-time homebuyer holds her keys
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Saving a sufficient down payment can be a major hurdle to homeownership. That’s where first-time homebuyer programs come in. If you’re a first-time homebuyer, a first-time homebuyer program can help you lock in a mortgage with a much lower down payment. 

Here’s what you need to know about first-time homebuyer programs: 

What is a first-time homebuyer program?

A first-time homebuyer program is typically a government-sponsored program designed to help people buy their first home. There are a number of programs offered by federal, state, and local governments. 

While each program has its own unique benefits, most first-time homebuyer programs offer low interest rates, down payment assistance, and lenient qualification requirements. 

What types of first-time homebuyer programs are available?

There are different types of programs designed to support first-time homebuyers with various aspects of the homebuying process, such as:

First-time homebuyer tax credit

Some first-time homebuyer programs offer tax benefits in the form of a mortgage credit certificate (MCC). With an MCC, you can convert some of your mortgage interest into a federal tax credit and lower your tax bill. The credit is usually non-refundable and capped at $2,000. Before you commit to a first-time homebuyer tax credit, read the fine print as there may be hidden costs. 

Low- and no-down payment mortgages

A down payment is a percentage of your home’s purchase price that you make up front. The federal government insures a few low- and no-down payment mortgage options, including:

  • FHA loans: Federal Housing Administration (FHA) loans let you qualify for a mortgage with a minimum credit score of 580 and as little as 3.5% down. If you have a lower score of at least 500, you can still get approved as long as you make a 10% down payment. 
  • VA loans: Loans from the Department of Veterans Affairs are designed for members of the military community and qualifying spouses. You may get a VA loan without a down payment, regardless of your credit score.
  • USDA loans: Guaranteed by the U.S. Department of Agriculture, USDA loans are for homebuyers who would like to buy properties in designated rural areas. A USDA loan has no down payment requirement. 

Closing assistance programs

Closing costs are the fees you pay to cover costs like property appraisals, mortgage fees, and attorney expenses. Your closing costs will likely be anywhere between 2% and 5% of your home’s purchase price. 

Many first-time homebuyer programs make closing costs more manageable. The Fannie Mae HomePath program, for example, offers closing cost assistance of up to 3% on HomePath properties. You can receive the assistance in the form of a grant, forgivable loan, or low-interest loan. If you buy a Fannie Mae foreclosed property, you may be eligible for this program.

Down payment assistance (DPA) programs

While no-down payment mortgages are available, most home loans do require a minimum down payment. The good news is down payment assistance (DPA) programs can help you cover some or all of your down payment. 

DPA programs are usually grants or low- to no-interest loans. Each program has its own particular rules for how you can use the funds and whether you’re required to repay them. You’ll find that most DPA programs are second mortgages with low interest rates. 

You may get a deferred payment loan that you don’t have to repay until you sell or refinance your first mortgage or forgivable loan. A forgivable loan will be forgiven as long as you stay on top of your mortgage payments and remain in your home for a certain period of time.

How to qualify for first-time homebuyer programs

While specific criteria can vary, here are the general qualifications for first-time homebuyer programs: 

  • First-time homebuyer status: If you’re buying your first home, you’ll be considered a first-time homebuyer. But you may be surprised to learn that if you haven’t owned a home in the past three years, you might also count as a first-time buyer. 
  • A decent credit score: Typically, you don’t need a perfect credit score to qualify for a first-time homebuyer program. In fact, many programs will approve you with an average credit score of 600 or lower.
  • Income within limits: Some programs only offer assistance to homebuyers with an income below a certain amount. That figure will depend on where you live and the cost of living in your area.
  • Home within purchase price limits: Many first-time homebuyer programs are only offered to those who would like to buy a home below a certain purchase price. If you’re in the market for a more expensive home, you might not qualify.
  • Property requirements: Depending on the program, you may have to use the home you intend to buy as a primary residence. This means you can’t rent it out or use it as a vacation home.
  • Lower debt-to-income ratio: Your debt-to-income (DTI) ratio compares your gross monthly income before taxes to your monthly debt payments. While a DTI ratio of 36% is preferred, you can still get accepted with a ratio as high as 50%. 
  • Homebuyer education: In some cases, you’ll be required to take a homebuyer education course. It can help you get a better understanding of the homebuying process and how it works. Fortunately, most homebuyer education courses are online and can be completed within a few hours.

Other types of first-time homebuyer programs

There are additional first-time homebuyer programs you might want to explore. But keep in mind that some have stricter qualifications than others. 

State and local first-time homebuyer programs

Some first-time homebuyer programs are available at the state and local level. The MI Home Loan, for example, is for first-time homebuyers in Michigan with low to moderate incomes. It offers a competitive interest rate and up to $7,500 in cash assistance for a down payment, closing costs, and prepaid expenses. 

Another example is the Dream Homeownership Program in Georgia. It provides first-time homebuyers with affordable financing options, down payment assistance, and educational courses. To qualify, you must have a minimum credit score of 640 and meet certain income and purchase price limits. 

Additionally, Florida offers the Florida Housing’s First Time Homebuyer Program. It can match you to a 30-year, fixed-rate mortgage from a participating lender. You may also lock in down payment assistance. This program may be an option if you’re a first-time homebuyer in Florida with a minimum credit score of 640 who completes an approved homebuyer education course. 

Charitable or nonprofit first-time homebuyer programs

If you have a low to moderate income, you may be eligible for a first-time homebuyer program through a charitable or nonprofit organization. 

Habitat for Humanity, is one example of a nonprofit with a mission to provide “simple, decent, and affordable” housing for low-income families. Compared to other options, Habitat for Humanity homes are typically much less expensive. 

There’s also Neighborhood Assistance Corporation Of America (NACA), which provides mortgage counseling and education you might find useful. NACA loans don’t have any credit score, down payment, and closing cost requirements. Plus they simplify the homebuying process based on your unique situation.